Roman Catholic Administrator vs.
LRC controlled by Filipino citizens, there being no question that the present incumbent of the corporation sole was a
102 Phil 597
G.R. No. L-8451, December 20, 1957
THE ROMAN CATHOLIC APOSTOLIC ADMINISTRATOR OF DAVAO, INC., petitioner,
vs.
THE LAND REGISTRATION COMMISSION and THE REGISTER OF DEEDS OF DAVAO
CITY, respondents.
Teodoro Padilla, for petitioner.
Office of the Solicitor General Ambrosio Padilla, Assistant Solicitor General Jose G. Bautista and Troadio T.
Quianzon, Jr., for respondents.
FELIX, J.:
This is a petition for mandamus filed by the Roman Catholic Apostolic Administrator of Davao seeking the
reversal of a resolution by the Land Registration Commissioner in L.R.C. Consulta No. 14. The facts of the case
are as follows:
On October 4, 1954, Mateo L. Rodis, a Filipino citizen and resident of the City of Davao, executed a deed of
sale of a parcel of land located in the same city covered by Transfer Certificate No. 2263, in favor of the Roman
Catholic Apostolic Administrator of Davao Inc., s corporation sole organized and existing in accordance with
Philippine Laws, with Msgr. Clovis Thibault, a Canadian citizen, as actual incumbent. When the deed of sale
was presented to Register of Deeds of Davao for registration, the latter.
having in mind a previous resolution of the Fourth Branch of the Court of First Instance of Manila
wherein the Carmelite Nuns of Davao were made to prepare an affidavit to the effect that 60 per cent
of the members of their corporation were Filipino citizens when they sought to register in favor of their
congregation of deed of donation of a parcel of land—
required said corporation sole to submit a similar affidavit declaring that 60 per cent of the members thereof
were Filipino citizens.
The vendee in the letter dated June 28, 1954, expressed willingness to submit an affidavit, both not in the same
tenor as that made the Progress of the Carmelite Nuns because the two cases were not similar, for whereas the
congregation of the Carmelite Nuns had five incorporators, the corporation sole has only one; that according to
their articles of incorporation, the organization of the Carmelite Nuns became the owner of properties donated to
it, whereas the case at bar, the totality of the Catholic population of Davao would become the owner of the
property bought to be registered.
As the Register of Deeds entertained some doubts as to the registerability if the document, the matter was
referred to the Land Registration Commissioner en consulta for resolution in accordance with section 4 of
Republic Act No. 1151. Proper hearing on the matter was conducted by the Commissioner and after the
petitioner corporation had filed its memorandum, a resolution was rendered on September 21, 1954, holding that
in view of the provisions of Section 1 and 5 of Article XIII of the Philippine Constitution, the vendee was not
qualified to acquire private lands in the Philippines in the absence of proof that at least 60 per centum of the
capital, property, or assets of the Roman Catholic Apostolic Administrator of Davao, Inc., was actually owned or
Canadian citizen. It was also the opinion of the Land Registration Commissioner that section 159 of the
corporation Law relied upon by the vendee was rendered operative by the aforementioned provisions of the
Constitution with respect to real estate, unless the precise condition set therein — that at least 60 per cent of its
capital is owned by Filipino citizens — be present, and, therefore, ordered the Registered Deeds of Davao to
deny registration of the deed of sale in the absence of proof of compliance with such condition.
After the motion to reconsider said resolution was denied, an action for mandamus was instituted with this Court
by said corporation sole, alleging that under the Corporation Law as well as the settled jurisprudence on the
matter, the deed of sale executed by Mateo L. Rodis in favor of petitioner is actually a deed of sale in favor of
the Catholic Church which is qualified to acquire private agricultural lands for the establishment and
maintenance of places of worship, and prayed that judgment be rendered reserving and setting aside the
resolution of the Land Registration Commissioner in question. In its resolution of November 15, 1954, this Court
gave due course to this petition providing that the procedure prescribed for appeals from the Public Service
Commission of the Securities and Exchange Commissions (Rule 43), be followed.
Section 5 of Article XIII of the Philippine Constitution reads as follows:
SEC. 5. Save in cases of hereditary succession, no private agricultural land shall be transferred or
assigned except to individuals, corporations, or associations qualified to acquire or hold lands of the
public domain in the Philippines.
Section 1 of the same Article also provides the following:
SECTION 1. All agricultural, timber, and mineral lands of the public domain, water, minerals, coal, petroleum,
and other mineral oils, all forces of potential energy, and other natural resources of the Philippines belong to the
State, and their disposition, exploitation, development, or utilization shall be limited to cititzens of the
Philippines, or to corporations or associations at least sixty per centum of the capital of which is owned by such
citizens, SUBJECT TO ANY EXISTING RIGHT, grant, lease, or concession AT THE TIME OF THE
INAUGURATION OF THE GOVERNMENT ESTABLISHED UNDER CONSTITUTION. Natural resources,
with the exception of public agricultural land, shall not be alienated, and no license, concession, or leases for the
exploitation, development, or utilization of any of the natural resources shall be granted for a period exceeding
twenty-five years, renewable for another twenty-five years, except as to water rights for irrigation, water supply,
fisheries, or industrial uses other than the development of water power, in which cases other than the
development and limit of the grant.
In virtue of the foregoing mandates of the Constitution, who are considered "qualified" to acquire and hold
agricultural lands in the Philippines? What is the effect of these constitutional prohibition of the right of a
religious corporation recognized by our Corporation Law and registered as a corporation sole, to possess,
acquire and register real estates in its name when the Head, Manager, Administrator or actual incumbent is an
alien?
Petitioner consistently maintained that a corporation sole, irrespective of the citizenship of its incumbent, is not
prohibited or disqualified to acquire and hold real properties. The Corporation Law and the Canon Law are
explicit in their provisions that a corporation sole or "ordinary" is not the owner of the of the properties that he
may acquire but merely the administrator thereof. The Canon Law also specified that church temporalities are
1
owned by the Catholic Church as a "moral person" or by the diocess as minor "moral persons" with the ordinary
or bishop as administrator.
And elaborating on the composition of the Catholic Church in the Philippines, petitioner explained that as a
religious society or organization, it is made up of 2 elements or divisions — the clergy or religious members and
the faithful or lay members. The 1948 figures of the Bureau of Census showed that there were 277,551 Catholics
in Davao and aliens residing therein numbered 3,465. Ever granting that all these foreigners are Catholics,
petitioner contends that Filipino citizens form more than 80 per cent of the entire Catholics population of that
area. As to its clergy and religious composition, counsel for petitioner presented the Catholic Directory of the
Philippines for 1954 (Annex A) which revealed that as of that year, Filipino clergy and women novices comprise
already 60.5 per cent of the group. It was, therefore, allowed that the constitutional requirement was fully met
and satisfied.
Respondents, on the other hand, averred that although it might be true that petitioner is not the owner of the land
purchased, yet he has control over the same, with full power to administer, take possession of, alienate, transfer,
encumber, sell or dispose of any or all lands and their improvements registered in the name of the corporation
sole and can collect, receive, demand or sue for all money or values of any kind that may be kind that may
become due or owing to said corporation, and vested with authority to enter into agreements with any persons,
concerns or entities in connection with said real properties, or in other words, actually exercising all rights of
ownership over the properties. It was their stand that the theory that properties registered in the name of the
corporation sole are held in true for the benefit of the Catholic population of a place, as of Davao in the case at
bar should be sustained because a conglomeration of persons cannot just be pointed out as the cestui que trust or
recipient of the benefits from the property allegedly administered in their behalf. Neither can it be said that the
mass of people referred to as such beneficiary exercise ant right of ownership over the same. This set-up,
respondents argued, falls short of a trust. The respondents instead tried to prove that in reality, the beneficiary of
ecclesiastical properties are not members or faithful of the church but someone else, by quoting a portion a
portion of the ought of fidelity subscribed by a bishop upon his elevation to the episcopacy wherein he promises
to render to the Pontificial Father or his successors an account of his pastoral office and of all things
appertaining to the state of this church.
Respondents likewise advanced the opinion that in construing the constitutional provision calling for 60 per cent
of Filipino citizenship, the criterion of the properties or assets thereof.
In solving the problem thus submitted to our consideration, We can say the following: A corporation sole is a
special form of corporation usually associated with the clergy. Conceived and introduced into the common law
by sheer necessity, this legal creation which was referred to as "that unhappy freak of English law" was designed
to facilitate the exercise of the functions of ownership carried on by the clerics for and on behalf of the church
which was regarded as the property owner (See I Couvier's Law Dictionary, p. 682-683).
A corporation sole consists of one person only, and his successors (who will always be one at a time), in some
particular station, who are incorporated by law in order to give them some legal capacities and advantages,
particularly that of perpetuity, which in their natural persons they could not have had. In this sense, the king is a
sole corporation; so is a bishop, or dens, distinct from their several chapters (Reid vs. Barry, 93 Fla. 849, 112 So.
846).
The provisions of our Corporation law on religious corporations are illuminating and sustain the stand of
petitioner. Section 154 thereof provides:
SEC. 154. — For the administration of the temporalities of any religious denomination, society or
church and the management of the estates and the properties thereof, it shall be lawful for the bishop,
chief priest, or presiding either of any such religious denomination, society or church to become a
corporation sole, unless inconsistent wit the rules, regulations or discipline of his religious
denomination, society or church or forbidden by competent authority thereof.
See also the pertinent provisions of the succeeding sections of the same Corporation Law copied hereunder:
SEC. 155. In order to become a corporation sole the bishop, chief priest, or presiding elder of any
religious denomination, society or church must file with the Securities and Exchange Commissioner
articles of incorporation setting forth the following facts:
xxx xxx xxx.
(3) That as such bishop, chief priest, or presiding elder he is charged with the administration of the
temporalities and the management of the estates and properties of his religious denomination, society,
or church within its territorial jurisdiction, describing it;
xxx xxx xxx.
(As amended by Commonwealth Act No. 287).
SEC. 157. From and after the filing with the Securities and Exchange Commissioner of the said
articles of incorporation, which verified by affidavit or affirmation as aforesaid and accompanied by
the copy of the commission, certificate of election, or letters of appointment of the bishop, chief priest,
or presiding elder, duly certified as prescribed in the section immediately preceding such the bishop,
chief priest, or presiding elder, as the case may be, shall become a corporation sole and all
temporalities, estates, and properties the religious denomination, society, or church therefore
administered or managed by him as such bishop, chief priest, or presiding elder, shall be held in trust
by him as a corporation sole, for the use, purpose, behalf, and sole benefit of his religious
denomination, society, or church, including hospitals, schools, colleges, orphan, asylums, parsonages,
and cemeteries thereof. For the filing of such articles of incorporation, the Securities and Exchange
Commissioner shall collect twenty-five pesos. (As amended by Commonwealth Act. No. 287); and.
SEC. 163. The right to administer all temporalities and all property held or owned by a religious order
or society, or by the diocese, synod, or district organization of any religious denomination or church
shall, on its incorporation, pass to the corporation and shall be held in trust for the use, purpose behalf,
and benefit of the religious society, or order so incorporated or of the church of which the diocese, or
district organization is an organized and constituent part.
The Cannon Law contains similar provisions regarding the duties of the corporation sole or ordinary as
administrator of the church properties, as follows:
Al Ordinario local pertenence vigilar diligentemente sobre la administracion de todos los bienes
eclesiasticos que se hallan en su territorio y no estuvieren sustraidos de su jurisdiccion, salvs las
prescriciones legitimas que le concedan mas aamplios derechos.
2
 Teniendo en cuenta los derechos y las legitimas costumbres y circunstancias, procuraran los
Ordinarios regular todo lo concerniente a la administracion de los bienes eclesciasticos, dando las
oportunas instucciones particularles dentro del narco del derecho comun. (Title XXVIII, Codigo de
Derecho Canonico, Lib. III, Canon 1519).1
That leaves no room for doubt that the bishops or archbishops, as the case may be, as corporation's sole are
merelyadministrators of the church properties that come to their possession, in which they hold in trust for the
church. It can also be said that while it is true that church properties could be administered by a natural persons,
problems regarding succession to said properties can not be avoided to rise upon his death. Through this legal
fiction, however, church properties acquired by the incumbent of a corporation sole pass, by operation of law,
upon his death not his personal heirs but to his successor in office. It could be seen, therefore, that a corporation
sole is created not only to administer the temporalities of the church or religious society where he belongs but
also to hold and transmit the same to his successor in said office. If the ownership or title to the properties do not
pass to the administrators, who are the owners of church properties?.
Bouscaren and Elis, S.J., authorities on cannon law, on their treatise comment:
In matters regarding property belonging to the Universal Church and to the Apostolic See, the
Supreme Pontiff exercises his office of supreme administrator through the Roman Curia; in matters
regarding other church property, through the administrators of the individual moral persons in the
Church according to that norms, laid down in the Code of Cannon Law. This does not mean, however,
that the Roman Pontiff is the owner of all the church property; but merely that he is the supreme
guardian (Bouscaren and Ellis, Cannon Law, A Text and Commentary, p. 764).
and this Court, citing Campes y Pulido, Legislacion y Jurisprudencia Canonica, ruled in the case of Trinidad vs.
Roman Catholic Archbishop of Manila, 63 Phil. 881, that:
The second question to be decided is in whom the ownership of the properties constituting the
endowment of the ecclesiastical or collative chaplaincies is vested.
Canonists entertain different opinions as to the persons in whom the ownership of the ecclesiastical
properties is vested, with respect to which we shall, for our purpose, confine ourselves to stating with
Donoso that, while many doctors cited by Fagnano believe that it resides in the Roman Pontiff as Head
of the Universal Church, it is more probable that ownership, strictly speaking, does not reside in the
latter, and, consequently, ecclesiastical properties are owned by the churches, institutions and
canonically established private corporations to which said properties have been donated.
Considering that nowhere can We find any provision conferring ownership of church properties on the Pope
although he appears to be the supreme administrator or guardian of his flock, nor on the corporation sole or
heads of dioceses as they are admittedly mere administrators of said properties, ownership of these temporalities
logically fall and develop upon the church, diocese or congregation acquiring the same. Although this question
of ownership of ecclesiastical properties has off and on been mentioned in several decisions of the Court yet in
no instance was the subject of citizenship of this religious society been passed upon.
We are not unaware of the opinion expressed by the late Justice Perfecto in his dissent in the case of Agustines
vs. Court of First Instance of Bulacan, 80 Phil. 565, to the effect that "the Roman Catholic Archbishop of Manila
is only a branch of a universal church by the Pope, with permanent residence in Rome, Italy". There is no
question that the Roman Catholic Church existing in the Philippines is a tributary and part of the international
religious organization, for the word "Roman" clearly expresses its unity with and recognizes the authority of the
Pope in Rome. However, lest We become hasty in drawing conclusions, We have to analyze and take note of the
nature of the government established in the Vatican City, of which it was said:
GOVERNMENT. In the Roman Catholic Church supreme authority and jurisdiction over clergy and
laity alike as held by the pope who (since the Middle Ages) is elected by the cardinals assembled in
conclave, and holds office until his death or legitimate abdication. . . While the pope is obviously
independent of the laws made, and the officials appointed, by himself or his predecessors, he usually
exercises his administrative authority according to the code of canon law and through the
congregations, tribunals and offices of the Curia Romana. In their respective territories (called
generally dioceses) and over their respective subjects, the patriarchs, metropolitans or archbishops and
bishops exercise a jurisdiction which is called ordinary (as attached by law to an office given to a
person. . . (Collier's Encyclopedia, Vol. 17, p. 93).
While it is true and We have to concede that in the profession of their faith, the Roman Pontiff is the supreme
head; that in the religious matters, in the exercise of their belief, the Catholic congregation of the faithful
throughout the world seeks the guidance and direction of their Spiritual Father in the Vatican, yet it cannot be
said that there is a merger of personalities resultant therein. Neither can it be said that the political and civil
rights of the faithful, inherent or acquired under the laws of their country, are affected by that relationship with
the Pope. The fact that the Roman Catholic Church in almost every country springs from that society that saw its
beginning in Europe and the fact that the clergy of this faith derive their authorities and receive orders from the
Holy See do not give or bestow the citizenship of the Pope upon these branches. Citizenship is a political right
which cannot be acquired by a sort of "radiation". We have to realize that although there is a fraternity among all
the catholic countries and the dioceses therein all over the globe, the universality that the word "catholic"
implies, merely characterize their faith, a uniformity in the practice and the interpretation of their dogma and in
the exercise of their belief, but certainly they are separate and independent from one another in jurisdiction,
governed by different laws under which they are incorporated, and entirely independent on the others in the
management and ownership of their temporalities. To allow theory that the Roman Catholic Churches all over
the world follow the citizenship of their Supreme Head, the Pontifical Father, would lead to the absurdity of
finding the citizens of a country who embrace the Catholic faith and become members of that religious society,
likewise citizens of the Vatican or of Italy. And this is more so if We consider that the Pope himself may be an
Italian or national of any other country of the world. The same thing be said with regard to the nationality or
citizenship of the corporation sole created under the laws of the Philippines, which is not altered by the change
of citizenship of the incumbent bishops or head of said corporation sole.
We must therefore, declare that although a branch of the Universal Roman Catholic Apostolic Church, every
Roman Catholic Church in different countries, if it exercises its mission and is lawfully incorporated in
accordance with the laws of the country where it is located, is considered an entity or person with all the rights
and privileges granted to such artificial being under the laws of that country, separate and distinct from the
personality of the Roman Pontiff or the Holy See, without prejudice to its religious relations with the latter
which are governed by the Canon Law or their rules and regulations.
We certainly are conscious of the fact that whatever conclusion We may draw on this matter will have a far
reaching influence, nor can We overlook the pages of history that arouse indignation and criticisms against
church landholdings. This nurtured feeling that snowbailed into a strong nationalistic sentiment manifested itself
when the provisions on natural to be embodied in the Philippine Constitution were framed, but all that has been
said on this regard referred more particularly to landholdings of religious corporations known as "Friar Estates"
3
which have already bee acquired by our government, and not to properties held by corporations sole which, We
repeat, are properties held in trust for the benefit of the faithful residing within its territorial jurisdiction. Though
that same feeling probably precipitated and influenced to a large extent the doctrine laid down in the celebrated
Krivenco decision, We have to take this matter in the light of legal provisions and jurisprudence actually
obtaining, irrespective of sentiments.
The question now left for our determination is whether the Universal Roman Catholic Apostolic Church in the
Philippines, or better still, the corporation sole named the Roman Catholic Apostolic Administrator of Davao,
Inc., is qualified to acquire private agricultural lands in the Philippines pursuant to the provisions of Article XIII
of the Constitution.
We see from sections 1 and 5 of said Article quoted before, that only persons or corporations qualified to acquire
hold lands of the public domain in the Philippines may acquire or be assigned and hold private agricultural lands.
Consequently, the decisive factor in the present controversy hinges on the proposition or whether or not the
petitioner in this case can acquire agricultural lands of the public domain.
From the data secured from the Securities and Exchange Commission, We find that the Roman Catholic Bishop
of Zamboanga was incorporated (as a corporation sole) in September, 1912, principally to administer its
temporalities and manage its properties. Probably due to the ravages of the last war, its articles of incorporation
were reconstructed in the Securities and Exchange Commission on April 8, 1948. At first, this corporation sole
administered all the temporalities of the church existing or located in the island of Mindanao. Later on, however,
new dioceses were formed and new corporations sole were created to correspond with the territorial jurisdiction
of the new dioceses, one of them being petitioner herein, the Roman Catholic Apostolic Administrator of Davao,
Inc., which was registered with the Securities and Exchange Commission on September 12, 1950, and succeeded
in the administrative for all the "temporalities" of the Roman Catholic Church existing in Davao.
According to our Corporation Law, Public Act No. 1549, approved April 1, 1906, a corporation sole.
is organized and composed of a single individual, the head of any religious society or church, for the
ADMINISTRATION of the temporalities of such society or church. By "temporalities" is meant estate
and properties not used exclusively for religious worship. The successor in office of such religious
head or chief priest incorporated as a corporation sole shall become the corporation sole on ascension
to office, and shall be permitted to transact business as such on filing with the Securities and Exchange
Commission a copy of his commission, certificate of election or letter of appointment duly certified by
any notary public or clerk of court of record (Guevara's The Philippine Corporation Law, p. 223).
The Corporation Law also contains the following provisions:
SECTION 159. Any corporation sole may purchase and hold real estate and personal; property for its
church, charitable, benevolent, or educational purposes, and may receive bequests or gifts of such
purposes. Such corporation may mortgage or sell real property held by it upon obtaining an order for
that purpose from the Court of First Instance of the province in which the property is situated; but
before making the order proof must be made to the satisfaction of the Court that notice of the
application for leave to mortgage or sell has been given by publication or otherwise in such manner
and for such time as said Court or the Judge thereof may have directed, and that it is to the interest of
the corporation that leave to mortgage or sell must be made by petition, duly verified by the bishop,
chief priest, or presiding elder acting as corporation sole, and may be opposed by any member of the
religious denomination, society or church represented by the corporation sole: Provided, however,
That in cases where the rules, regulations, and discipline of the religious denomination, society or
church concerned represented by such corporation sole regulate the methods of acquiring, holding,
selling and mortgaging real estate and personal property, such rules, regulations, and discipline shall
control and the intervention of the Courts shall not be necessary.
It can, therefore, be noticed that the power of a corporation sole to purchase real property, like the power
exercised in the case at bar, it is not restricted although the power to sell or mortgage sometimes is, depending
upon the rules, regulations, and discipline of the church concerned represented by said corporation sole. If
corporations sole can purchase and sell real estate for its church, charitable, benevolent, or educational purposes,
can they register said real properties? As provided by law, lands held in trust for specific purposes me be subject
of registration (section 69, Act 496), and the capacity of a corporation sole, like petitioner herein, to register
lands belonging to it is acknowledged, and title thereto may be issued in its name (Bishop of Nueva Segovia vs.
Insular Government, 26 Phil. 300-1913). Indeed it is absurd that while the corporations sole that might be in
need of acquiring lands for the erection of temples where the faithful can pray, or schools and cemeteries which
they are expressly authorized by law to acquire in connection with the propagation of the Roman Catholic
Apostolic faith or in furtherance of their freedom of religion they could not register said properties in their name.
As professor Javier J. Nepomuceno very well says "Man in his search for the immortal and imponderable, has,
even before the dawn of recorded history, erected temples to the Unknown God, and there is no doubt that he
will continue to do so for all time to come, as long as he continues 'imploring the aid of Divine Providence'"
(Nepomuceno's Corporation Sole, VI Ateneo Law Journal, No. 1, p. 41, September, 1956). Under the
circumstances of this case, We might safely state that even before the establishment of the Philippine
Commonwealth and of the Republic of the Philippines every corporation sole then organized and registered had
by express provision of law the necessary power and qualification to purchase in its name private lands located
in the territory in which it exercised its functions or ministry and for which it was created, independently of the
nationality of its incumbent unique and single member and head, the bishop of the dioceses. It can be also
maintained without fear of being gainsaid that the Roman Catholic Apostolic Church in the Philippines has no
nationality and that the framers of the Constitution, as will be hereunder explained, did not have in mind the
religious corporations sole when they provided that 60 per centum of the capital thereof be owned by Filipino
citizens.
There could be no controversy as to the fact that a duly registered corporation sole is an artificial being having
the right of succession and the power, attributes, and properties expressly authorized by law or incident to its
existence (section 1, Corporation Law). In outlining the general powers of a corporation. Public Act. No. 1459
provides among others:
SEC. 13. Every corporation has the power:
(5) To purchase, hold, convey, sell, lease, lot, mortgage, encumber, and otherwise deal with such real
and personal property as the purpose for which the corporation was formed may permit, and the
transaction of the lawful business of the corporation may reasonably and necessarily require, unless
otherwise prescribed in this Act: . . .
In implementation of the same and specially made applicable to a form of corporation recognized by the same
law, Section 159 aforequoted expressly allowed the corporation sole to purchase and hold real as well as
personal properties necessary for the promotion of the objects for which said corporation sole is created.
Respondent Land Registration Commissioner, however, maintained that since the Philippine Constitution is a
4
later enactment than public Act No. 1459, the provisions of Section 159 in amplification of Section 13 thereof,
as regard real properties, should be considered repealed by the former.
There is a reason to believe that when the specific provision of the Constitution invoked by respondent
Commissioner was under consideration, the framers of the same did not have in mind or overlooked this
particular form of corporation. It is undeniable that the naturalization and conservation of our national resources
was one of the dominating objectives of the Convention and in drafting the present Article XII of the
Constitution, the delegates were goaded by the desire (1) to insure their conservation for Filipino posterity; (2) to
serve as an instrument of national defense, helping prevent the extension into the country of foreign control
through peaceful economic penetration; and (3) to prevent making the Philippines a source of international
conflicts with the consequent danger to its internal security and independence (See The Framing of the
Philippine Constitution by Professor Jose M. Aruego, a Delegate to the Constitutional Convention, Vol. II. P.
592-604). In the same book Delegate Aruego, explaining the reason behind the first consideration, wrote:
At the time of the framing of Philippine Constitution, Filipino capital had been to be rather shy.
Filipinos hesitated s a general rule to invest a considerable sum of their capital for the development,
exploitation and utilization of the natural resources of the country. They had not as yet been so used to
corporate as the peoples of the west. This general apathy, the delegates knew, would mean the
retardation of the development of the natural resources, unless foreign capital would be encouraged to
come and help in that development. They knew that the naturalization of the natural resources would
certainly not encourage the INVESTMENT OF FOREIGN CAPITAL into them. But there was a
general feeling in the Convention that it was better to have such a development retarded or even
postpone together until such time when the Filipinos would be ready and willing to undertake it rather
than permit the natural resources to be placed under the ownership or control of foreigners in order that
they might be immediately be developed, with the Filipinos of the future serving not as owners but
utmost as tenants or workers under foreign masters. By all means, the delegates believed, the natural
resources should be conserved for Filipino posterity.
It could be distilled from the foregoing that the farmers of the Constitution intended said provisions as barrier for
foreigners or corporations financed by such foreigners to acquire, exploit and develop our natural resources,
saving these undeveloped wealth for our people to clear and enrich when they are already prepared and capable
of doing so. But that is not the case of corporations sole in the Philippines, for, We repeat, they are mere
administrators of the "temporalities" or properties titled in their name and for the benefit of the members of their
respective religion composed of an overwhelming majority of Filipinos. No mention nor allusion whatsoever is
made in the Constitution as to the prohibition against or the liability of the Roman Catholic Church in the
Philippines to acquire and hold agricultural lands. Although there were some discussions on landholdings, they
were mostly confined in the inclusion of the provision allowing the Government to break big landed estates to
put an end to absentee landlordism.
But let us suppose, for the sake of argument, that the above referred to inhibitory clause of Section 1 of Article
XIII of the constitution does have bearing on the petitioner's case; even so the clause requiring that at least 60
per centum of the capital of the corporation be owned by Filipinos is subordinated to the petitioner's aforesaid
right already existing at the time of the inauguration of the Commonwealth and the Republic of the Philippines.
In the language of Mr. Justice Jose P. Laurel (a delegate to the Constitutional Convention), in his concurring
opinion of the case of Gold Creek mining Corporation, petitioner vs. Eulogio Rodriguez, Secretary of
Agriculture and Commerce, and Quirico Abadilla, Director of the Bureau of Mines, respondent, 66 Phil. 259:
The saving clause in the section involved of the Constitution was originally embodied in the report
submitted by the Committee on Naturalization and Preservation of Land and Other Natural Resources
to the Constitutional Convention on September 17, 1954. It was later inserted in the first draft of the
Constitution as section 13 of Article XIII thereof, and finally incorporated as we find it now. Slight
have been the changes undergone by the proviso from the time when it comes out of the committee
until it was finally adopted. When first submitted and as inserted to the first draft of the Constitution it
reads: 'subject to any right, grant, lease, or concession existing in respect thereto on the date of the
adoption of the Constitution'. As finally adopted, the proviso reads: 'subject to any existing right, grant,
lease, or concession at the time of the inauguration of the Government established under this
Constitution'. This recognition is not mere graciousness but springs form the just character of the
government established. The framers of the Constitution were not obscured by the rhetoric of
democracy or swayed to hostility by an intense spirit of nationalism. They well knew that conservation
of our natural resources did not mean destruction or annihilation of acquired property rights. Withal,
they erected a government neither episodic nor stationary but well-nigh conservative in the protection
of property rights. This notwithstanding nationalistic and socialistic traits discoverable upon even a
sudden dip into a variety of the provisions embodied in the instrument.
The writer of this decision wishes to state at this juncture that during the deliberation of this case he submitted to
the consideration of the Court the question that may be termed the "vested right saving clause" contained in
Section 1, Article XII of the Constitution, but some of the members of this Court either did not agree with the
theory of the writer, or were not ready to take a definite stand on the particular point I am now to discuss
deferring our ruling on such debatable question for a better occasion, inasmuch as the determination thereof is
not absolutely necessary for the solution of the problem involved in this case. In his desire to face the issues
squarely, the writer will endeavor, at least as a disgression, to explain and develop his theory, not as a
lucubration of the Court, but of his own, for he deems it better and convenient to go over the cycle of reasons
that are linked to one another and that step by step lead Us to conclude as We do in the dispositive part of this
decision.
It will be noticed that Section 1 of Article XIII of the Constitution provides, among other things, that "all
agricultural lands of the public domain and their disposition shall be limited to citizens of the Philippines or
to corporations at least 60 per centum of the capital of which is owned by such citizens, SUBJECT TO ANY
EXISTING RIGHT AT THE TIME OF THE INAUGURATION OF THE GOVERNMENT ESTABLISHED
UNDER THIS CONSTITUTION."
As recounted by Mr. Justice Laurel in the aforementioned case of Gold Creek Mining Corporation vs. Rodriguez
et al., 66 Phil. 259, "this recognition (in the clause already quoted), is not mere graciousness but springs from the
just character of the government established. The farmers of the Constitution were not obscured by the rhetoric
of democracy or swayed to hostility by an intense spirit of nationalism. They well knew that conservation of our
natural resources did not mean destruction or annihilation of ACQUIRED PROPERTY RIGHTS".
But respondents' counsel may argue that the preexisting right of acquisition of public or private lands by a
corporation which does not fulfill this 60 per cent requisite, refers to purchases of the Constitution and not to
later transactions. This argument would imply that even assuming that petitioner had at the time of the enactment
of the Constitution the right to purchase real property or right could not be exercised after the effectivity of our
Constitution, because said power or right of corporations sole, like the herein petitioner, conferred in virtue of
the aforequoted provisions of the Corporation Law, could no longer be exercised in view of the requisite therein
prescribed that at least 60 per centum of the capital of the corporation had to be Filipino. It has been shown
before that: (1) the corporation sole, unlike the ordinary corporations which are formed by no less than 5
5
incorporators, is composed of only one persons, usually the head or bishop of the diocese, a unit which is not
subject to expansion for the purpose of determining any percentage whatsoever; (2) the corporation sole is only
the administrator and not the owner of the temporalities located in the territory comprised by said corporation
sole; (3) such temporalities are administered for and on behalf of the faithful residing in the diocese or territory
of the corporation sole; and (4) the latter, as such, has no nationality and the citizenship of the incumbent
Ordinary has nothing to do with the operation, management or administration of the corporation sole, nor effects
the citizenship of the faithful connected with their respective dioceses or corporation sole.
In view of these peculiarities of the corporation sole, it would seem obvious that when the specific provision of
the Constitution invoked by respondent Commissioner (section 1, Art. XIII), was under consideration, the
framers of the same did not have in mind or overlooked this particular form of corporation. If this were so, as the
facts and circumstances already indicated tend to prove it to be so, then the inescapable conclusion would be that
this requirement of at least 60 per cent of Filipino capital was never intended to apply to corporations sole, and
the existence or not a vested right becomes unquestionably immaterial.
But let us assumed that the questioned proviso is material. yet We might say that a reading of said Section 1 will
show that it does not refer to any actual acquisition of land up to the right, qualification or power to acquire and
hold private real property. The population of the Philippines, Catholic to a high percentage, is ever increasing. In
the practice of religion of their faithful the corporation sole may be in need of more temples where to pray, more
schools where the children of the congregation could be taught in the principles of their religion, more hospitals
where their sick could be treated, more hallow or consecrated grounds or cemeteries where Catholics could be
buried, many more than those actually existing at the time of the enactment of our Constitution. This being the
case, could it be logically maintained that because the corporation sole which, by express provision of law, has
the power to hold and acquire real estate and personal property of its churches, charitable benevolent, or
educational purposes (section 159, Corporation Law) it has to stop its growth and restrain its necessities just
because the corporation sole is a non-stock corporation composed of only one person who in his unity does not
admit of any percentage, especially when that person is not the owner but merely an administrator of the
temporalities of the corporation sole? The writer leaves the answer to whoever may read and consider this
portion of the decision.
Anyway, as stated before, this question is not a decisive factor in disposing the case, for even if We were to
disregard such saving clause of the Constitution, which reads: subject to any existing right, grant, etc., at the
same time of the inauguration of the Government established under this Constitution, yet We would have, under
the evidence on record, sufficient grounds to uphold petitioner's contention on this matter.
In this case of the Register of Deeds of Rizal vs. Ung Sui Si Temple, 2 G.R. No. L-6776, promulgated May 21,
1955, wherein this question was considered from a different angle, this Court through Mr. Justice J.B.L. Reyes,
said:
The fact that the appellant religious organization has no capital stock does not suffice to escape the
Constitutional inhibition, since it is admitted that its members are of foreign nationality. The purpose
of the sixty per centum requirement is obviously to ensure that corporation or associations allowed to
acquire agricultural land or to exploit natural resources shall be controlled by Filipinos; and the spirit
of the Constitution demands that in the absence of capital stock, the controlling membership should be
composed of Filipino citizens.
In that case respondent-appellant Ung Siu Si Temple was not a corporation sole but a corporation aggregate, i.e.,
an unregistered organization operating through 3 trustees, all of Chinese nationality, and that is why this Court
laid down the doctrine just quoted. With regard to petitioner, which likewise is a non-stock corporation, the case
is different, because it is a registered corporation sole, evidently of no nationality and registered mainly to
administer the temporalities and manage the properties belonging to the faithful of said church residing in
Davao. But even if we were to go over the record to inquire into the composing membership to determine
whether the citizenship requirement is satisfied or not, we would find undeniable proof that the members of the
Roman Catholic Apostolic faith within the territory of Davao are predominantly Filipino citizens. As indicated
before, petitioner has presented evidence to establish that the clergy and lay members of this religion fully
covers the percentage of Filipino citizens required by the Constitution. These facts are not controverted by
respondents and our conclusion in this point is sensibly obvious.
Dissenting Opinion—Discussed. — After having developed our theory in the case and arrived at the findings and
conclusions already expressed in this decision. We now deem it proper to analyze and delve into the basic
foundation on which the dissenting opinion stands up. Being aware of the transcendental and far-reaching effects
that Our ruling on the matter might have, this case was thoroughly considered from all points of view, the Court
sparing no effort to solve the delicate problems involved herein.
At the deliberations had to attain this end, two ways were open to a prompt dispatch of the case: (1) the reversal
of the doctrine We laid down in the celebrated Krivenko case by excluding urban lots and properties from the
group of the term "private agricultural lands" use in this section 5, Article XIII of the Constitution; and (2) by
driving Our reasons to a point that might indirectly cause the appointment of Filipino bishops or Ordinary to
head the corporations sole created to administer the temporalities of the Roman Catholic Church in the
Philippines. With regard to the first way, a great majority of the members of this Court were not yet prepared nor
agreeable to follow that course, for reasons that are obvious. As to the second way, it seems to be misleading
because the nationality of the head of a diocese constituted as a corporation sole has no material bearing on the
functions of the latter, which are limited to the administration of the temporalities of the Roman Catholic
Apostolic Church in the Philippines.
Upon going over the grounds on which the dissenting opinion is based, it may be noticed that its author lingered
on the outskirts of the issues, thus throwing the main points in controversy out of focus. Of course We fully
agree, as stated by Professor Aruego, that the framers of our Constitution had at heart to insure the conservation
of the natural resources of Our motherland of Filipino posterity; to serve them as an instrument of national
defense, helping prevent the extension into the country of foreign control through peaceful economic
penetration; and to prevent making the Philippines a source of international conflicts with the consequent danger
to its internal security and independence. But all these precautions adopted by the Delegates to Our
Constitutional Assembly could have not been intended for or directed against cases like the one at bar. The
emphasis and wonderings on the statement that once the capacity of a corporation sole to acquire private
agricultural lands is admitted there will be no limit to the areas that it may hold and that this will pave the way
for the "revival or revitalization of religious landholdings that proved so troublesome in our past", cannot even
furnish the "penumbra" of a threat to the future of the Filipino people. In the first place, the right of Filipino
citizens, including those of foreign extraction, and Philippine corporations, to acquire private lands is not subject
to any restriction or limit as to quantity or area, and We certainly do not see any wrong in that. The right of
Filipino citizens and corporations to acquire public agricultural lands is already limited by law. In the second
place, corporations sole cannot be considered as aliens because they have no nationality at all. Corporations sole
are, under the law, mere administrators of the temporalities of the Roman Catholic Church in the Philippines. In
the third place, every corporation, be it aggregate or sole, is only entitled to purchase, convey, sell, lease, let,
mortgage, encumber and otherwise deal with real properties when it is pursuant to or in consonance with the
purposes for which the corporation was formed, and when the transactions of the lawful business of the
corporation reasonably and necessarily require such dealing — section 13-(5) of the Corporation Law, Public
Act No. 1459 — and considering these provisions in conjunction with Section 159 of the same law which
6
provides that a corporation sole may only "purchase and hold real estate and personal properties for its church,
charitable, benevolent or educational purposes", the above mentioned fear of revitalization of religious
landholdings in the Philippines is absolutely dispelled. The fact that the law thus expressly authorizes the
corporations sole to receive bequests or gifts of real properties (which were the main source that the friars had to
acquire their big haciendas during the Spanish regime), is a clear indication that the requisite that bequests or
gifts of real estate be for charitable, benevolent, or educational purposes, was, in the opinion of the legislators,
considered sufficient and adequate protection against the revitalization of religious landholdings.
Finally, and as previously stated, We have reason to believe that when the Delegates to the Constitutional
Convention drafted and approved Article XIII of the Constitution they do not have in mind the corporation sole.
We come to this finding because the Constitutional Assembly, composed as it was by a great number of eminent
lawyers and jurists, was like any other legislative body empowered to enact either the Constitution of the country
or any public statute, presumed to know the conditions existing as to particular subject matter when it enacted a
statute (Board of Commerce of Orange Country vs. Bain, 92 S.E. 176; N. C. 377).
Immemorial customs are presumed to have been always in the mind of the Legislature in enacting
legislation. (In re Kruger's Estate, 121 A. 109; 277 P. 326).
The Legislative is presumed to have a knowledge of the state of the law on the subjects upon which it
legislates. (Clover Valley Land and Stock Co. vs. Lamb et al., 187, p. 723,726.)
The Court in construing a statute, will assume that the legislature acted with full knowledge of the
prior legislation on the subject and its construction by the courts. (Johns vs. Town of Sheridan, 89 N.
E. 899, 44 Ind. App. 620.).
The Legislature is presumed to have been familiar with the subject with which it was dealing . . . .
(Landers vs. Commonwealth, 101 S. E. 778, 781.).
The Legislature is presumed to know principles of statutory construction. (People vs. Lowell, 230 N.
W. 202, 250 Mich. 349, followed in P. vs. Woodworth, 230 N.W. 211, 250 Mich. 436.).
It is not to be presumed that a provision was inserted in a constitution or statute without reason, or that
a result was intended inconsistent with the judgment of men of common sense guided by reason"
(Mitchell vs. Lawden, 123 N.E. 566, 288 Ill. 326.) See City of Decatur vs. German, 142 N. E. 252, 310
Ill. 591, and may other authorities that can be cited in support hereof.
Consequently, the Constitutional Assembly must have known:
1. That a corporation sole is organized by and composed of a single individual, the head of any
religious society or church operating within the zone, area or jurisdiction covered by said corporation
sole (Article 155, Public Act No. 1459);
2. That a corporation sole is a non-stock corporation;
3. That the Ordinary ( the corporation sole proper) does not own the temporalities which he merely
administers;
4. That under the law the nationality of said Ordinary or of any administrator has absolutely no bearing
on the nationality of the person desiring to acquire real property in the Philippines by purchase or other
lawful means other than by hereditary succession, who according to the Constitution must be a
Filipino (sections 1 and 5, Article XIII).
5. That section 159 of the Corporation Law expressly authorized the corporation sole to purchase and
hold real estate for its church, charitable, benevolent or educational purposes, and to receive bequests
or gifts for such purposes;
6. That in approving our Magna Carta the Delegates to the Constitutional Convention, almost all of
whom were Roman Catholics, could not have intended to curtail the propagation of the Roman
Catholic faith or the expansion of the activities of their church, knowing pretty well that with the
growth of our population more places of worship, more schools where our youth could be taught and
trained; more hallow grounds where to bury our dead would be needed in the course of time.
Long before the enactment of our Constitution the law authorized the corporations sole even to receive bequests
or gifts of real estates and this Court could not, without any clear and specific provision of the Constitution,
declare that any real property donated, let as say this year, could no longer be registered in the name of the
corporation sole to which it was conveyed. That would be an absurdity that should not receive our sanction on
the pretext that corporations sole which have no nationality and are non-stock corporations composed of only
one person in the capacity of administrator, have to establish first that at least sixty per centum of their capital
belong to Filipino citizens. The new Civil Code even provides:
ART. 10. — In case of doubt in the interpretation or application of laws, it is presumed that the
lawmaking body intended right and justice to prevail.
Moreover, under the laws of the Philippines, the administrator of the properties of a Filipino can acquire, in the
name of the latter, private lands without any limitation whatsoever, and that is so because the properties thus
acquired are not for and would not belong to the administrator but to the Filipino whom he represents. But the
dissenting Justice inquires: If the Ordinary is only the administrator, for whom does he administer? And who can
alter or overrule his acts? We will forthwith proceed to answer these questions. The corporations sole by reason
of their peculiar constitution and form of operation have no designed owner of its temporalities, although by the
terms of the law it can be safely implied that the Ordinary holds them in trust for the benefit of the Roman
Catholic faithful to their respective locality or diocese. Borrowing the very words of the law, We may say that
the temporalities of every corporation sole are held in trust for the use, purpose, behalf and benefit of the
religious society, or order so incorporated or of the church to which the diocese, synod, or district organization
is an organized and constituent part (section 163 of the Corporation Law).
In connection with the powers of the Ordinary over the temporalities of the corporation sole, let us see now what
is the meaning and scope of the word "control". According to the Merriam-Webster's New International
Dictionary, 2nd ed., p. 580, on of the acceptations of the word "control" is:
4. To exercise restraining or directing influence over; to dominate; regulate; hence, to hold from
action; to curb; subject; also, Obs. — to overpower.
SYN: restrain, rule, govern, guide, direct; check, subdue.
7
It is true that under section 159 of the Corporation Law, the intervention of the courts is not necessary,
to mortgage or sell real property held by the corporation sole where the rules, regulations and discipline of the
religious denomination, society or church concerned presented by such corporation sole regulates the methods of
acquiring, holding, selling and mortgaging real estate, and that the Roman Catholic faithful residing in the
jurisdiction of the corporation sole has no say either in the manner of acquiring or of selling real property. It may
be also admitted that the faithful of the diocese cannot govern or overrule the acts of the Ordinary, but all this
does not mean that the latter can administer the temporalities of the corporation sole without check or restraint.
We must not forget that when a corporation sole is incorporated under Philippine laws, the head and only
member thereof subjects himself to the jurisdiction of the Philippine courts of justice and these tribunals can thus
entertain grievances arising out of or with respect to the temporalities of the church which came into the
possession of the corporation sole as administrator. It may be alleged that the courts cannot intervene as to the
matters of doctrine or teachings of the Roman Catholic Church. That is correct, but the courts may step in, at the
instance of the faithful for whom the temporalities are being held in trust, to check undue exercise by the
corporation sole of its power as administrator to insure that they are used for the purpose or purposes for which
the corporation sole was created.
American authorities have these to say:
It has been held that the courts have jurisdiction over an action brought by persons claiming to be
members of a church, who allege a wrongful and fraudulent diversion of the church property to uses
foreign to the purposes of the church, since no ecclesiastical question is involved and equity will
protect from wrongful diversion of the property(Hendryx vs. Peoples United Church, 42 Wash. 336, 4
L.R.A. — n.s. — 1154).
The courts of the State have no general jurisdiction and control over the officers of such corporations
in respect to the performance of their official duties; but as in respect to the property which they hold
for the corporation, they stand in position of TRUSTEES and the courts may exercise the same
supervision as in other cases of trust(Ramsey vs. Hicks, 174 Ind. 428, 91 N.E. 344, 92 N.E. 164, 30
L.R.A. — n.s. — 665; Hendryx vs. Peoples United Church, supra.).
Courts of the state do not interfere with the administration of church rules or discipline unless civil
rights become involved and which must be protected (Morris St., Baptist Church vs. Dart, 67 S.C. 338,
45 S.E. 753, and others). (All cited in Vol. II, Cooley's Constitutional Limitations, p. 960-964.).
If the Constitutional Assembly was aware of all the facts above enumerated and of the provisions of law relative
to existing conditions as to management and operation of corporations sole in the Philippines, and if, on the
other hand, almost all of the Delegates thereto embraced the Roman Catholic faith, can it be imagined even for
an instant that when Article XIII of the Constitution was approved the framers thereof intended to prevent or
curtail from then on the acquisition sole, either by purchase or donation, of real properties that they might need
for the propagation of the faith and for there religious and Christian activities such as the moral education of the
youth, the care, attention and treatment of the sick and the burial of the dead of the Roman Catholic faithful
residing in the jurisdiction of the respective corporations sole? The mere indulgence in said thought would
impress upon Us a feeling of apprehension and absurdity. And that is precisely the leit motiv that permeates the
whole fabric of the dissenting opinion.
It seems from the foregoing that the main problem We are confronted with in this appeal, hinges around the
necessity of a proper and adequate interpretation of sections 1 and 5 of Article XIII of the Constitution. Let Us
then be guided by the principles of statutory construction laid down by the authorities on the matter:
The most important single factor in determining the intention of the people from whom the
constitution emanated is the language in which it is expressed. The words employed are to be taken in
their natural sense, except that legal or technical terms are to be given their technical meaning. The
imperfections of language as a vehicle for conveying meanings result in ambiguities that must be
resolved by result to extraneous aids for discovering the intent of the framers. Among the more
important of these are a consideration of the history of the times when the provision was adopted and
of the purposes aimed at in its adoption. The debates of constitutional convention, contemporaneous
construction, and practical construction by the legislative and executive departments, especially if long
continued, may be resorted to resolve, but not to create, ambiguities. . . . Consideration of the
consequences flowing from alternative constructions of doubtful provisions constitutes an important
interpretative device. . . . The purposes of many of the broadly phrased constitutional limitations were
the promotion of policies that do not lend themselves to definite and specific formulation. The courts
have had to define those policies and have often drawn on natural law and natural rights theories in
doing so. The interpretation of constitutions tends to respond to changing conceptions of political and
social values. The extent to which these extraneous aids affect the judicial construction of constitutions
cannot be formulated in precise rules, but their influence cannot be ignored in describing the essentials
of the process (Rottschaeffer on Constitutional Law, 1939 ed., p. 18-19).
There are times that when even the literal expression of legislation may be inconsistent with the
general objectives of policy behind it, and on the basis of equity or spirit of the statute the courts
rationalize a restricted meaning of the latter. A restricted interpretation is usually applied where the
effect of literal interpretation will make for injustice and absurdity or, in the words of one court, the
language must be so unreasonable 'as to shock general common sense'. (Vol. 3, Sutherland on
Statutory Construction, 3rd ed., 150.).
A constitution is not intended to be a limitation on the development of a country nor an obstruction to
its progress and foreign relations (Moscow Fire Ins. Co. of Moscow, Russia vs. Bank of New York and
Trust Co., 294 N. Y. S.648; 56 N.E. 2d. 745, 293 N.Y. 749).
Although the meaning or principles of a constitution remain fixed and unchanged from the time of its
adoption, a constitution must be construed as if intended to stand for a great length of time, and it is
progressive and not static. Accordingly, it should not receive too narrow or literal an interpretation but
rather the meaning given it should be applied in such manner as to meet new or changed conditions as
they arise (U.S. vs. Lassic, 313 U.S. 299, 85 L. Ed., 1368).
Effect should be given to the purpose indicated by a fair interpretation of the language used and that
construction which effectuates, rather than that which destroys a plain intent or purpose of a
constitutional provision, is not only favored but will be adopted (State ex rel. Randolph Country vs.
Walden, 206 S.W. 2d 979).
It is quite generally held that in arriving at the intent and purpose the construction should be broad or
liberal or equitable, as the better method of ascertaining that intent, rather than technical (Great
Southern Life Ins. Co. vs. City of Austin, 243 S.W. 778).
All these authorities uphold our conviction that the framers of the Constitution had not in mind the corporations
sole, nor intended to apply them the provisions of section 1 and 5 of said Article XIII when they passed and
approved the same. And if it were so as We think it is, herein petitioner, the Roman Catholic Apostolic
Administrator of Davao, Inc., could not be deprived of the right to acquire by purchase or donation real
8
properties for charitable, benevolent and educational purposes, nor of the right to register the same in its name
with the Register of Deeds of Davao, an indispensable requisite prescribed by the Land Registration Act for
lands covered by the Torrens system.
We leave as the last theme for discussion the much debated question above referred to as "the vested right saving
clause" contained in section 1, Article XIII of the Constitution. The dissenting Justice hurls upon the personal
opinion expressed on the matter by the writer of the decision the most pointed darts of his severe criticism. We
think, however, that this strong dissent should have been spared, because as clearly indicated before, some
members of this Court either did not agree with the theory of the writer or were not ready to take a definite stand
on that particular point, so that there being no majority opinion thereon there was no need of any dissension
therefrom. But as the criticism has been made the writer deems it necessary to say a few words of explanation.
The writer fully agrees with the dissenting Justice that ordinarily "a capacity to acquire (property) in futuro, is
not in itself a vested or existing property right that the Constitution protects from impairment. For a property
right to be vested (or acquired) there must be a transition from the potential or contingent to the actual, and the
proprietary interest must have attached to a thing; it must have become 'fixed and established'" (Balboa vs.
Farrales, 51 Phil. 498). But the case at bar has to be considered as an exception to the rule because among the
rights granted by section 159 of the Corporation Law was the right to receive bequests or gifts of real properties
for charitable, benevolent and educational purposes. And this right to receive such bequests or gifts (which
implies donations in futuro), is not a mere potentiality that could be impaired without any specific provision in
the Constitution to that effect, especially when the impairment would disturbingly affect the propagation of the
religious faith of the immense majority of the Filipino people and the curtailment of the activities of their
Church. That is why the writer gave us a basis of his contention what Professor Aruego said in his book "The
Framing of the Philippine Constitution" and the enlightening opinion of Mr. Justice Jose P. Laurel, another
Delegate to the Constitutional Convention, in his concurring opinion in the case of Goldcreek Mining Co. vs.
Eulogio Rodriguez et al., 66 Phil. 259. Anyway the majority of the Court did not deem necessary to pass upon
said "vested right saving clause" for the final determination of this case.
JUDGMENT
Wherefore, the resolution of the respondent Land Registration Commission of September 21, 1954, holding that
in view of the provisions of sections 1 and 5 of Article XIII of the Philippine Constitution the vendee (petitioner)
is not qualified to acquire lands in the Philippines in the absence of proof that at least 60 per centum of the
capital, properties or assets of the Roman Catholic Apostolic Administrator of Davao, Inc. is actually owned or
controlled by Filipino citizens, and denying the registration of the deed of sale in the absence of proof of
compliance with such requisite, is hereby reversed. Consequently, the respondent Register of Deeds of the City
of Davao is ordered to register the deed of sale executed by Mateo L. Rodis in favor of the Roman Catholic
Apostolic Administrator of Davao, Inc., which is the subject of the present litigation. No pronouncement is made
as to costs. It is so ordered
Republic vs. Villanueva
114 SCRA 321
G.R. No. L-55289, June 29, 1982
REPUBLIC OF THE PHILIPPINES, represented by the Director of Lands, petitioner-appellant,
vs.
JUDGE CANDIDO P. VILLANUEVA, of the Court of First Instance of Bulacan, Malolos Branch VII,
and IGLESIA NI CRISTO, as a corporation sole, represented by ERAÑO G. MANALO, as Executive
Minister, respondents-appellees.
Corporations; Land Registration; Constitutional Law; A religious corporation sole, which has no nationality, like
the Iglesia ni Cnsto cannot acquire lands beyond the limits prescribed by the Constitution.—As correctly
contended by the Solicitor General, the Iglesia Ni Cristo, as a corporation sole or a juridical person, is
disqualified to acquire or hold alienable lands of the public domain, like the two lots in question, because of the
constitutional prohibition already mentioned and because the said church is not entitled to avail itself of the
benefits of section 48(b) which applies only to Filipino citizens or natural persons. A corporation sole (an
“unhappy freak of English law”) has no nationality (Roman Catholic Apostolic Adm. of Dayao, Inc. vs. Land
Registration Commission, 102 Phil. 596. See Register of Deeds vs. Ung Siu Si Temple, 97 Phil. 58 and sec, 49
of the Public Land Law).
Same; Same; Same; Same.—The contention in the comments, of the Iglesia Ni Cristo (its lawyer did not file any
brief) that the two lots are private lands, following the rule laid down in Susi vs. Razon and Director of Lands,
48 Phil. 424, is not correct. What was considered private land in the Susi case was a parcel of land possessed by
a Filipino citizen since time immemorial as in Cariño vs. Insular Government, 212 U.S. 449, 53 L. ed 594, 41
Phil. 935 and 7 Phil. 132. The lots sought to be registered in this case do not fall within that category. They are
still public lands. A land registration proceeding under section 48(b) “presupposes that the land is public”
(Mindanao vs. Director of Lands, L-19535, July 10, 1967, 20 SCRA 641, 644).
Land Registration; A petition for confirmation of title presupposes that the land pertains to the State.—In Uy Un
vs. Perez, 71 Phil. 508, it was noted that the right of an occupant of public agricultural land to obtain a
confirmation of his title under section 48(b) of the Public Land Law is a “derecho dominical incoativo” and that
before the issuance of the certificate of title the occupant is not in the juridical sense the true owner of the land
since it still pertains to the State.
Fernando, C.J., dissenting;
Constitutional Law; Land Registration; The Iglesia ni Cnsto is entitled lo equal protection as the Roman Catholic
Church to register the land in this case there also being a chapel thereon.—Here the Iglesia ni Cristo, as a
corporation sole, seeks the registration. The area involved in the two parcels of land in question is 313 square
meters. As admitted in the opinion of the Court, a chapel is therein located. It is that basic consideration that
leads me to conclude that the balancing process, which finds application in constitutional law adjudication,
equally requires that when two provisions in the Constitution may be relevant to a certain factual situation calls
for the affirmance of the decision of respondent Judge allowing the registration. There is for me another obstacle
to a partial concurrence. The right of the Roman Catholic Apostolic Administrator of Davao to register land
purchased from a Filipino citizen was recognized in The Roman Catholic Apostolic Administrator of Davao v.
Land Registration. As I view it, therefore, the decision of respondent Judge is equally entitled to affirmance on
equal protection grounds.
Teehankee, J., dissenting:
Land Registration; The land involved in this case had already ceased to be public land inasmuch as the Iglesia ni
Cristo and its predecessors have already performed all the conditions essential to a Government grant.—This
dissent is based on the failure of the majority to adhere to established doctrine since the 1909 case of Cariño and
the 1925 case of Susi down to the 1980 case of Herico, infra, pursuant to the Public Land Act, as amended, that
9
where a possessor has held the open, exclusive and unchallenged possession of alienable public land for the
statutory period provided by law (30 years now under amendatory Rep. Act No. 1942 approved on June 22,
1957), the law itself mandates that the possessor “shal be conclusively presumed to have performed all the
conditions essential to a Government grant and shall be entitled to a certificate of title” and “by legal fiction [the
land] has already ceased to be of the public domain and has become private property.” Accordingly, the
prohibition of the 1973 Constitution and of the Public Land Act against private corporations holding lands of the
public domain has no applicability in the present cases. What Meralco and Iglesia have acquired from their
predecessors-in-interest had already ceased to be of the public domain and had become private property at the
time of the sale to them and therefore their applications for confirmation of title by virtue of their predecessors-
in-interest’ vested right and title may be duly granted.
APPEAL from the judgment of the Court of First Instance of Bulacan, Malolos Br. VII, Villanueva, J.
The facts are stated in t he opinion of the Court.
AQUINO, J.:
Like L-49623, Manila Electric Company vs. Judge Castro-Bartolome, this case involves the prohibition in
section 11, Article XIV of the Constitution that "no private corporation or association may hold alienable lands
of the public domain except by lease not to exceed one thousand hectares in area".

Same; Same.—In fine, since under the Court’s settled doctrine, the acquisitive prescription of alienable or Lots Nos. 568 and 569, located at Barrio Dampol, Plaridel, Bulacan, with an area of 313 square meters and an
disposable public lands provided for now in section 48, par. (b) of the Public Land Act takes place by operation assessed value of P1,350 were acquired by the Iglesia Ni Cristo on January 9, 1953 from Andres Perez in
of law and the public land is converted to and becomes private property upon a showing of open and exchange for a lot with an area of 247 square meters owned by the said church (Exh. D).
unchallenged possession under bona fide claim of ownership by the applicants’ predecessors-in-interest for the
statutory period of thirty years immediately preceding the filing of the application and “it is not necessary that a The said lots were already possessed by Perez in 1933. They are not included in any military reservation. They
certificate of title should be issued in order that said grant may be sanctioned by the court” which right is are inside an area which was certified as alienable or disposable by the Bureau of Forestry in 1927. The lots are
expressly backed up by the conclusive presumption or presumption juris et de jure of the statute that the planted to santol and mango trees and banana plants. A chapel exists on the said land. The land had been
possessor has “performed all the conditions essential to a Government grant,” the applicant Meralco cannot be declared for realty tax purposes. Realty taxes had been paid therefor (Exh. N).
said to be barred as a corporation from filing the application for registration of the private property duly acquired
by it.
On September 13, 1977, the Iglesia Ni Cristo, a corporation sole, duly existing under Philippine laws, filed with
the Court of First Instance of Bulacan an application for the registration of the two lots. It alleged that it and its
De Castro, J., separate opinion: predecessors-in-interest had possessed the land for more than thirty years. It invoked section 48(b) of the Public
Land Law, which provides:
Land Registration; The land involved in this case has not become private land as no court has adjudicated the
same to a private owner yet.—It is because of the divesture of authority of the Director of Lands to dispose of Chapter VIII.—Judicial confirmation of imperfect or incomplete titles.
the land subject to judicial confirmation of incomplete and imperfect title that some statements are found in
many cases, such as these cited by Justice Teehankee, to the effect that such land has ceased to be public land.
What these statements, however, really mean is that the land referred to no longer forms part of the mass of xxx xxx xxx
public domain still disposable by the Director of Lands, under the authority granted him by the public land
statutes. It, however, would not follow that the land covered by Section 48 of the Public Land Act has itself SEC. 48. The following-described citizens of the Philippines, occupying lands of the public
become private land. The fact that its disposition is provided for in the aforecited Act which deals with “public domain or claiming to own any such lands or an interest therein, but whose titles have not
land” gives rise to the very strong implication, if not a positive conclusion, that the land referred to is still public been perfected or completed, may apply to the Court of First Instance of the province where
land. Only when the court adjudicates the land to the applicant for confirmation of title would the land become the land is located for confirmation of their claims and the issuance of a certificate of title
privately owned land, for in the same proceeding, the court may declare it public land, depending on the therefore, under the Land Register Act, to wit:
evidence.
xxx xxx xxx
Same; The Iglesia ni Cristo comes within the definition of a “corporation” in the Constitution.—As previously
stated, by express provision of the Constitution, no corporation or association may hold alienable lands of the
(b) Those who by themselves or through their predecessors-in-interest have been in open,
public domain except by lease, not to exceed 1,000 hectares in area. Hence, even if the land involved in the
continuous, exclusive, and notorious possession and occupation of agricultural lands of the
present case is considered private land, the cited section prohibits its acquisition by the Meralco or Iglesia which
public domain, under a bona fide claim of acquisition of ownership, for at least thirty years
admittedly are “corporations or association” within the meaning at the aforecited provision of the New
immediately preceding the filing of the application for confirmation of title except when
Constitution, This observation should end all arguments on the issue of whether the land in question is public or
prevented by war or force majeure. These shall be conclusively presumed to have performed
private land. Although it may further be observed that supposing a corporation has been in possession of a piece
all the conditions essential to a Government grant and shall be entitled to a certificate of title
of public land from the very beginning, may it apply for judicial confirmation of the land in question to acquire
under the provisions of this chapter." (As amended by Republic Act No. 1942, approved on
title to it as owner after possessing the land for the requisite length of time? The answer is believed obvious—it
June 22, 1957.)
may not. If its possession is not from the beginning but has commenced only upon the transfer to it by the prior
possessor, may the corporation apply? The answer is just as obvious—with more reason, it may not.

10
The Republic of the Philippines, through the Direct/r of Lands, opposed the application on the grounds that
applicant, as a private corporation, is disqualified to hold alienable lands of the public domain, that the land
applied for is public land not susceptible of private appropriation and that the applicant and its predecessors-in-
interest have not been in the open, continuous, exclusive and notorious possession of the land since June 12,
1945.
After hearing, the trial court ordered the registration of the two lots, as described in Plan Ap-04-001344 (Exh.
E), in the name of the Iglesia Ni Cristo, a corporation sole, represented by Executive Minister Eraño G. Manalo,
with office at the corner of Central and Don Mariano Marcos Avenues, Quezon City, From that decision, the
Republic of the Philippines appealed to this Court under Republic Act No. 5440. The appeal should be sustained.
As correctly contended by the Solicitor General, the Iglesia Ni Cristo, as a corporation sole or a juridical person,
is disqualified to acquire or hold alienable lands of the public domain, like the two lots in question, because of
the constitutional prohibition already mentioned and because the said church is not entitled to avail itself of the
benefits of section 48(b) which applies only to Filipino citizens or natural persons. A corporation sole (an
"unhappy freak of English law") has no nationality (Roman Catholic Apostolic Adm. of Davao, Inc. vs. Land
Registration Commission, 102 Phil. 596. See Register of Deeds vs. Ung Siu Si Temple, 97 Phil. 58 and sec. 49
of the Public Land Law).
The contention in the comments of the Iglesia Ni Cristo (its lawyer did not file any brief) that the two lots are
private lands, following the rule laid down in Susi vs. Razon and Director of Lands, 48 Phil. 424, is not correct.
What was considered private land in the Susi case was a parcel of land possessed by a Filipino citizen since time
immemorial, as in Cariño vs. Insular Government, 212 U.S. 449, 53 L. ed. 594, 41 Phil. 935 and 7 Phil. 132. The
lots sought to be registered in this case do not fall within that category. They are still public lands. A land
registration proceeding under section 48(b) "presupposes that the land is public" (Mindanao vs. Director of
Lands, L-19535, July 10, 1967, 20 SCRA 641, 644).
As held in Oh Cho vs. Director of Lands, 75 Phil. 890, "all lands that were not acquired from the Government,
either by purchase or by grant, belong to the public domain. An exception to the rule would be any land that
should have been in the possession of an occupant and of his predecessors-in-interest since time immemorial, for
such possession would justify the presumption that the land had never been part of the public domain or that it
had been a private property even before the Spanish conquest. "
In Uy Un vs. Perez, 71 Phil. 508, it was noted that the right of an occupant of public agricultural land to obtain a
confirmation of his title under section 48(b) of the Public Land Law is a "derecho dominical incoativo"and that
before the issuance of the certificate of title the occupant is not in the juridical sense the true owner of the land
since it still pertains to the State.
The lower court's judgment is reversed and set aside. The application for registration of the Iglesia Ni Cristo is
dismissed with costs against said applicant.
SO ORDERED.
Collector of Internal Revenue vs. Club Filipino, Inc. de Cebu
5 SCRA 321
G.R. No. L-12719, May 31, 1962
THE COLLECTOR OF INTERNAL REVENUE, petitioner,
vs.
THE CLUB FILIPINO, INC. DE CEBU, respondent.
Office of the Solicitor General for petitioner.
V. Jaime and L. E. Petilla for respondent.
Taxation; Percentage Tax; Bar and Restaurant; When operator not engaged in business.—The liability for fixed
and percentage taxes as provided by Sections 182, 183 and 191 of the Tax Code does not ipso facto attach by
mere reason of the operation of a bar and restaurant. For the liability to attach, the operator thereof must be
engaged in the business as a barkeeper and restaurateur.
Same; Words and Phrases; "Business", meaning of.—The plain and ordinary meaning of business is restricted to
activities or affairs where profit is the purpose or livelihood is the motive, and the term business when used
without qualification, should be construed in its plain and ordinary meaning, restricted to activities for profit or
livelihood.
Same; Club Filipino, Inc. de Cebu; Not engaged in bar and restaurant.—The Club Filipino, Inc. de Cebu was
organized to develop and cultivate sports of all class and denomination, for the healthful recreation and
entertainment of its stockholders and members; that upon its dissolution, its remaining assets, after paying debts
shall be donated to a charitable Philippine Institution in Cebu; that it is operated mainly with funds derived from
membership fees and dues; that the Club's bar and restaurant catered only to its members and their guests; that
there was in fact no cash dividend distribution to its stockholders and that whatever was derived on retail from
its bar and restaurant was used to defray its overall overhead expenses and to improve its golf course (cost-plus-
expenses-basis), it stands to reason that the Club is not engaged in the business of an operator of bar and
restaurant.
PETITION for review of a decision of the Court of Tax Appeals.
The facts are stated in the opinion of the Court.
Solicitor General for petitioner.
V. Jaime & L. E. Petilla for respondent.
PAREDES, J.:
This is a petition to review the decision of the Court of Tax Appeals, reversing the decision of the Collector of
Internal Revenue, assessing against and demanding from the "Club Filipino, Inc. de Cebu", the sum of
P12,068.84 as fixed and percentage taxes, surcharge and compromise penalty, allegedly due from it as a keeper
of bar and restaurant.
As found by the Court of Tax Appeals, the "Club Filipino, Inc. de Cebu," (Club, for short), is a civic corporation
organized under the laws of the Philippines with an original authorized capital stock of P22,000.00, which was
subsequently increased to P200,000.00, among others, to it "proporcionar, operar, y mantener un campo de golf,
tenis, gimnesio (gymnasiums), juego de bolos (bowling alleys), mesas de billar y pool, y toda clase de juegos no
11
prohibidos por leyes generales y ordenanzas generales; y desarollar y cultivar deportes de toda clase y
denominacion cualquiera para el recreo y entrenamiento saludable de sus miembros y accionistas" (sec. 2,
Escritura de Incorporacion del Club Filipino, Inc. Exh. A). Neither in the articles or by-laws is there a provision
relative to dividends and their distribution, although it is covenanted that upon its dissolution, the Club's
remaining assets, after paying debts, shall be donated to a charitable Philippine Institution in Cebu (Art. 27,
Estatutos del Club, Exh. A-a.).
The Club owns and operates a club house, a bowling alley, a golf course (on a lot leased from the government),
and a bar-restaurant where it sells wines and liquors, soft drinks, meals and short orders to its members and their
guests. The bar-restaurant was a necessary incident to the operation of the club and its golf-course. The club is
operated mainly with funds derived from membership fees and dues. Whatever profits it had, were used to
defray its overhead expenses and to improve its golf-course. In 1951. as a result of a capital surplus, arising from
the re-valuation of its real properties, the value or price of which increased, the Club declared stock dividends;
but no actual cash dividends were distributed to the stockholders. In 1952, a BIR agent discovered that the Club
has never paid percentage tax on the gross receipts of its bar and restaurant, although it secured B-4, B-9(a) and
B-7 licenses. In a letter dated December 22, 1852, the Collector of Internal Revenue assessed against and
demanded from the Club, the following sums: —
As percentage tax on its gross receipts
during the tax years 1946 to 1951 P9,599.07
Surcharge therein 2,399.77
As fixed tax for the years 1946 to 1952 70.00
Compromise penalty 500.00
The Club wrote the Collector, requesting for the cancellation of the assessment. The request having been denied,
the Club filed the instant petition for review.
The dominant issues involved in this case are twofold:
1. Whether the respondent Club is liable for the payment of the sum of 12,068.84, as fixed and percentage taxes
and surcharges prescribed in sections 182, 183 and 191 of the Tax Code, under which the assessment was made,
in connection with the operation of its bar and restaurant, during the periods mentioned above; and
2. Whether it is liable for the payment of the sum of P500.00 as compromise penalty.
Section 182, of the Tax Code states, "Unless otherwise provided, every person engaging in a business on which
the percentage tax is imposed shall pay in full a fixed annual tax of ten pesos for each calendar year or fraction
thereof in which such person shall engage in said business." Section 183 provides in general that "the percentage
taxes on business shall be payable at the end of each calendar quarter in the amount lawfully due on the business
transacted during each quarter; etc." And section 191, same Tax Code, provides "Percentage tax . . . Keepers of
restaurants, refreshment parlors and other eating places shall pay a tax three per centum, and keepers of bar and
cafes where wines or liquors are served five per centum of their gross receipts . . .". It has been held that the
liability for fixed and percentage taxes, as provided by these sections, does not ipso facto attach by mere reason
of the operation of a bar and restaurant. For the liability to attach, the operator thereof must be engaged in the
business as a barkeeper and restaurateur. The plain and ordinary meaning of business is restricted to activities or
affairs where profit is the purpose or livelihood is the motive, and the term business when used without
qualification, should be construed in its plain and ordinary meaning, restricted to activities for profit or
livelihood (The Coll. of Int. Rev. v. Manila Lodge No. 761 of the BPOE [Manila Elks Club] & Court of Tax
Appeals, G.R. No. L-11176, June 29, 1959, giving full definitions of the word "business"; Coll. of Int. Rev. v.
Sweeney, et al. [International Club of Iloilo, Inc.], G.R. No. L-12178, Aug. 21, 1959, the facts of which are
similar to the ones at bar; Manila Polo Club v. B. L. Meer, etc., No. L-10854, Jan. 27, 1960).
Having found as a fact that the Club was organized to develop and cultivate sports of all class and denomination,
for the healthful recreation and entertainment of its stockholders and members; that upon its dissolution, its
remaining assets, after paying debts, shall be donated to a charitable Philippine Institution in Cebu; that it is
operated mainly with funds derived from membership fees and dues; that the Club's bar and restaurant catered
only to its members and their guests; that there was in fact no cash dividend distribution to its stockholders and
that whatever was derived on retail from its bar and restaurant was used to defray its overall overhead expenses
and to improve its golf-course (cost-plus-expenses-basis), it stands to reason that the Club is not engaged in the
business of an operator of bar and restaurant (same authorities, cited above).
It is conceded that the Club derived profit from the operation of its bar and restaurant, but such fact does not
necessarily convert it into a profit-making enterprise. The bar and restaurant are necessary adjuncts of the Club
to foster its purposes and the profits derived therefrom are necessarily incidental to the primary object of
developing and cultivating sports for the healthful recreation and entertainment of the stockholders and
members. That a Club makes some profit, does not make it a profit-making Club. As has been remarked a club
should always strive, whenever possible, to have surplus (Jesus Sacred Heart College v. Collector of Int. Rev.,
G.R. No. L-6807, May 24, 1954; Collector of Int. Rev. v. Sinco Educational Corp., G.R. No. L-9276, Oct. 23,
1956).1äwphï1.ñët
It is claimed that unlike the two cases just cited (supra), which are non-stock, the appellee Club is a stock
corporation. This is unmeritorious. The facts that the capital stock of the respondent Club is divided into shares,
does not detract from the finding of the trial court that it is not engaged in the business of operator of bar and
restaurant. What is determinative of whether or not the Club is engaged in such business is its object or purpose,
as stated in its articles and by-laws. It is a familiar rule that the actual purpose is not controlled by the corporate
form or by the commercial aspect of the business prosecuted, but may be shown by extrinsic evidence, including
the by-laws and the method of operation. From the extrinsic evidence adduced, the Tax Court concluded that the
Club is not engaged in the business as a barkeeper and restaurateur.
Moreover, for a stock corporation to exist, two requisites must be complied with, to wit: (1) a capital stock
divided into shares and (2) an authority to distribute to the holders of such shares, dividends or allotments of the
surplus profits on the basis of the shares held (sec. 3, Act No. 1459). In the case at bar, nowhere in its articles of
incorporation or by-laws could be found an authority for the distribution of its dividends or surplus profits.
Strictly speaking, it cannot, therefore, be considered a stock corporation, within the contemplation of the
corporation law.
A tax is a burden, and, as such, it should not be deemed imposed upon fraternal, civic, non-profit, nonstock
organizations, unless the intent to the contrary is manifest and patent" (Collector v. BPOE Elks Club, et
al., supra), which is not the case in the present appeal.
12
Having arrived at the conclusion that respondent Club is not engaged in the business as an operator of a bar and
restaurant, and therefore, not liable for fixed and percentage taxes, it follows that it is not liable for any penalty,
much less of a compromise penalty.
WHEREFORE, the decision appealed from is affirmed without costs.
Manuel R. Dulay Enterprises, Inc. vs. Court of Appeals
225 SCRA 678
G.R. No. 91889 August 27, 1993
MANUEL R. DULAY ENTERPRISES, INC., VIRGILIO E. DULAY AND NEPOMUCENO
REDOVAN, petitioners,
vs.
THE HONORABLE COURT OF APPEALS, EDGARDO D. PABALAN, MANUEL A. TORRES, JR.,
MARIA THERESA V. VELOSO AND CASTRENSE C. VELOSO, respondents.
Virgilio E. Dulay for petitioners.
Torres, Tobias, Azura & Jocson for private respondents.
Corporation Law; Petitioner corporation is classified as a close corporation and consequently a board resolution
authorizing the sale or mortgage of the subject property is not necessary to bind the Corporation for the action of
its President.—In the instant case, petitioner corporation is classified as a close corporation and consequently a
board resolution authorizing the sale or mortgage of the subject property is not necessary to bind the corporation
for the action of its president. At any rate, a corporate action taken at a board meeting without proper call or
notice in a close corporation is deemed ratified by the absent director unless the latter promptly files his written
objection with the secretary of the corporation after having knowledge of the meeting which, in this case,
petitioner Virgilio Dulay failed to do.
Same; Piercing the veil of corporate fiction; When the corporation is used merely as an alter ego or business
conduit of a person, the law will regard the corporation as the act of that person.—It is relevant to note that
although a corporation is an entity which has a personality distinct and separate from its individual stockholders
or members, the veil of corporate fiction may be pierced when it is used to defeat public convenience, justify
wrong, protect fraud or defend crime. The privilege of being treated as an entity distinct and separate from its
stockholders or members is therefore confined to its legitimate uses and is subject to certain limitations to
prevent the commission of fraud or other illegal or unfair act. When the corporation is used merely as an alter
ego or business conduit of a person, the law will regard the corporation as the act of that person. The Supreme
Court had repeatedly disregarded the separate personality of the corporation where the corporate entity was used
to annul a valid contract executed by one of its members.
Civil Law; Sale; The mere execution of the deed of sale in a public document is equivalent to the delivery of the
property; Prior physical delivery or possession not legally required.—Under the aforementioned article, the mere
execution of the deed of sale in a public document is equivalent to the delivery of the property. x x x x x x
Therefore, prior physical delivery or possession is not legally required since the execution of the Deed of Sale is
deemed equivalent to delivery.
PETITION for review on certiorari of the decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Virgilio E. Dulay for petitioners.
Torres, Tobias, Azura & Jocson for private respondents.
NOCON, J.:
This is a petition for review on certiorari to annul and set aside the decision 1 of the Court of Appeals affirming
the decision 2of the Regional Trial Court of Pasay, Branch 114 Civil Cases Nos. 8198-P, and 2880-P, the
dispositive portion of which reads, as follows:
Wherefore, in view of all the foregoing considerations, in this Court hereby renders judgment, as
follows:
In Civil Case No. 2880-P, the petition filed by Manuel R. Dulay Enterprises, Inc. and Virgilio E. Dulay
for annulment or declaration of nullity of the decision of the Metropolitan Trial Court, Branch 46, Pasay
City, in its Civil Case No. 38-81 entitled "Edgardo D. Pabalan, et al., vs. Spouses Florentino
Manalastas, et al.," is dismissed for lack of merits;
In Civil Case No. 8278-P, the complaint filed by Manuel R. Dulay Enterprises, Inc. for cancellation of
title of Manuel A. Torres, Jr. (TCT No. 24799 of the Register of Deeds of Pasay City) and
reconveyance, is dismissed for lack or merit, and,
In Civil Case No. 8198-P, defendants Manuel R. Dulay Enterprises, Inc. and Virgilio E. Dulay are
ordered to surrender and deliver possession of the parcel of land, together with all the improvements
thereon, described in Transfer Certificate of Title No. 24799 of the Register of Deeds of Pasay City, in
favor of therein plaintiffs Manuel A. Torres, Jr. as owner and Edgardo D. Pabalan as real estate
administrator of said Manuel A. Torres, Jr.; to account for and return to said plaintiffs the rentals from
dwelling unit No. 8-A of the apartment building (Dulay Apartment) from June 1980 up to the present, to
indemnify plaintiffs, jointly and severally, expenses of litigation in the amount of P4,000.00 and
attorney's fees in the sum of P6,000.00, for all the three (3) cases. Co-defendant Nepomuceno Redovan
is ordered to pay the current and subsequent rentals on the premises leased by him to plaintiffs.
The counterclaim of defendants Virgilio E. Dulay and Manuel R. Dulay Enterprises, Inc. and N.
Redovan, dismissed for lack of merit. With costs against the three (3) aforenamed defendants. 3
The facts as found by the trial court are as follows:
Petitioner Manuel R. Dulay Enterprises, Inc, a domestic corporation with the following as members of its Board
of Directors: Manuel R. Dulay with 19,960 shares and designated as president, treasurer and general manager,
Atty. Virgilio E. Dulay with 10 shares and designated as vice-president; Linda E. Dulay with 10 shares; Celia
Dulay-Mendoza with 10 shares; and Atty. Plaridel C. Jose with 10 shares and designated as secretary, owned a
property covered by TCT No. 17880 4 and known as Dulay Apartment consisting of sixteen (16) apartment units
13
on a six hundred eighty-nine (689) square meters lot, more or less, located at Seventh Street (now Buendia
Extension) and F.B. Harrison Street, Pasay City.
Petitioner corporation through its president, Manuel Dulay, obtained various loans for the construction of its
hotel project, Dulay Continental Hotel (now Frederick Hotel). It even had to borrow money from petitioner
Virgilio Dulay to be able to continue the hotel project. As a result of said loan, petitioner Virgilio Dulay
occupied one of the unit apartments of the subject property since property since 1973 while at the same time
managing the Dulay Apartment at his shareholdings in the corporation was subsequently increased by his
father. 5
On December 23, 1976, Manuel Dulay by virtue of Board Resolution
No 18 6 of petitioner corporation sold the subject property to private respondents spouses Maria Theresa and
Castrense Veloso in the amount of P300,000.00 as evidenced by the Deed of Absolute Sale. 7 Thereafter, TCT
No. 17880 was cancelled and TCT No. 23225 was issued to private respondent Maria Theresa
Veloso. 8 Subsequently, Manuel Dulay and private respondents spouses Veloso executed a Memorandum to the
Deed of Absolute Sale of December 23, 1976 9 dated December 9, 1977 giving Manuel Dulay within (2) years or
until December 9, 1979 to repurchase the subject property for P200,000.00 which was, however, not annotated
either in TCT No. 17880 or TCT No. 23225.
On December 24, 1976, private respondent Maria Veloso, without the knowledge of Manuel Dulay, mortgaged
the subject property to private respondent Manuel A. Torres for a loan of P250,000.00 which was duly annotated
as Entry No. 68139 in TCT No. 23225. 10
Upon the failure of private respondent Maria Veloso to pay private respondent Torres, the subject property was
sold on April 5, 1978 to private respondent Torres as the highest bidder in an extrajudicial foreclosure sale as
evidenced by the Certificate of Sheriff's Sale 11 issued on April 20, 1978.
On July 20, 1978, private respondent Maria Veloso executed a Deed of Absolute Assignment of the Right to
Redeem 12 in favor of Manuel Dulay assigning her right to repurchase the subject property from private
respondent Torres as a result of the extra sale held on April 25, 1978.
As neither private respondent Maria Veloso nor her assignee Manuel Dulay was able to redeem the subject
property within the one year statutory period for redemption, private respondent Torres filed an Affidavit of
Consolidation of Ownership 13with the Registry of Deeds of Pasay City and TCT No. 24799 14 was subsequently
issued to private respondent Manuel Torres on April 23, 1979.
On October 1, 1979, private respondent Torres filed a petition for the issuance of a writ of possession against
private respondents spouses Veloso and Manuel Dulay in LRC Case No. 1742-P. However, when petitioner
Virgilio Dulay was never authorized by the petitioner corporation to sell or mortgage the subject property, the
trial court ordered private respondent Torres to implead petitioner corporation as an indispensable party but the
latter moved for the dismissal of his petition which was granted in an Order dated April 8, 1980.
On June 20, 1980, private respondent Torres and Edgardo Pabalan, real estate administrator of Torres, filed an
action against petitioner corporation, Virgilio Dulay and Nepomuceno Redovan, a tenant of Dulay Apartment
Unit No. 8-A for the recovery of possession, sum of money and damages with preliminary injunction in Civil
Case, No. 8198-P with the then Court of First Instance of Rizal.
On July 21, 1980, petitioner corporation filed an action against private respondents spouses Veloso and Torres
for the cancellation of the Certificate of Sheriff's Sale and TCT No. 24799 in Civil Case No. 8278-P with the
then Court of First Instance of Rizal.
On January 29, 1981, private respondents Pabalan and Torres filed an action against spouses Florentino and
Elvira Manalastas, a tenant of Dulay Apartment Unit No. 7-B, with petitioner corporation as intervenor for
ejectment in Civil Case No. 38-81 with the Metropolitan Trial Court of Pasay City which rendered a decision on
April 25, 1985, dispositive portion of which reads, as follows:
Wherefore, judgment is hereby rendered in favor of the plaintiff (herein private respondents)
and against the defendants:
1. Ordering the defendants and all persons claiming possession under them to vacate the
premises.
2. Ordering the defendants to pay the rents in the sum of P500.000 a month from May, 1979
until they shall have vacated the premises with interest at the legal rate;
3. Ordering the defendants to pay attorney's fees in the sum of P2,000.00 and P1,000.00 as
other expenses of litigation and for them to pay the costs of the suit. 15
Thereafter or on May 17, 1985, petitioner corporation and Virgilio Dulay filed an action against the presiding
judge of the Metropolitan Trial Court of Pasay City, private respondents Pabalan and Torres for the annulment
of said decision with the Regional Trial Court of Pasay in Civil Case No. 2880-P.
Thereafter, the three (3) cases were jointly tried and the trial court rendered a decision in favor of private
respondents.
Not satisfied with said decision, petitioners appealed to the Court of Appeals which rendered a decision on
October 23, 1989, the dispositive portion of which reads, as follows:
PREMISES CONSIDERED, the decision being appealed should be as it is hereby
AFFIRMED in full. 16
On November 8, 1989, petitioners filed a Motion for Reconsideration which was denied on January 26, 1990.
Hence, this petition.
During the pendency of this petition, private respondent Torres died on April 3, 1991 as shown in his death
certificate 17and named Torres-Pabalan Realty & Development Corporation as his heir in his holographic
will 18 dated October 31, 1986.
Petitioners contend that the respondent court had acted with grave abuse of discretion when it applied the
doctrine of piercing the veil of corporate entity in the instant case considering that the sale of the subject
property between private respondents spouses Veloso and Manuel Dulay has no binding effect on petitioner
14
corporation as Board Resolution No. 18 which authorized the sale of the subject property was resolved without
the approval of all the members of the board of directors and said Board Resolution was prepared by a person
not designated by the corporation to be its secretary.
We do not agree.
Section 101 of the Corporation Code of the Philippines provides:
Sec. 101. When board meeting is unnecessary or improperly held. Unless the by-laws
provide otherwise, any action by the directors of a close corporation without a meeting shall
nevertheless be deemed valid if:
1. Before or after such action is taken, written consent thereto is signed by all the directors,
or
2. All the stockholders have actual or implied knowledge of the action and make no prompt
objection thereto in writing; or
3. The directors are accustomed to take informal action with the express or implied acquiese
of all the stockholders, or
4. All the directors have express or implied knowledge of the action in question and none of
them makes prompt objection thereto in writing.
If a directors' meeting is held without call or notice, an action taken therein within the
corporate powers is deemed ratified by a director who failed to attend, unless he promptly
files his written objection with the secretary of the corporation after having knowledge
thereof.
In the instant case, petitioner corporation is classified as a close corporation and consequently a board resolution
authorizing the sale or mortgage of the subject property is not necessary to bind the corporation for the action of
its president. At any rate, corporate action taken at a board meeting without proper call or notice in a close
corporation is deemed ratified by the absent director unless the latter promptly files his written objection with the
secretary of the corporation after having knowledge of the meeting which, in his case, petitioner Virgilio Dulay
failed to do.
It is relevant to note that although a corporation is an entity which has a personality distinct and separate from its
individual stockholders or members, 19 the veil of corporate fiction may be pierced when it is used to defeat
public convenience justify wrong, protect fraud or defend crime. 20 The privilege of being treated as an entity
distinct and separate from its stockholder or members is therefore confined to its legitimate uses and is subject to
certain limitations to prevent the commission of fraud or other illegal or unfair act. When the corporation is used
merely as an alter ego or business conduit of a person, the law will regard the corporation as the act of that
person. 21 The Supreme Court had repeatedly disregarded the separate personality of the corporation where the
corporate entity was used to annul a valid contract executed by one of its members.
Petitioners' claim that the sale of the subject property by its president, Manuel Dulay, to private respondents
spouses Veloso is null and void as the alleged Board Resolution No. 18 was passed without the knowledge and
consent of the other members of the board of directors cannot be sustained. As correctly pointed out by the
respondent Court of Appeals:
Appellant Virgilio E. Dulay's protestations of complete innocence to the effect that he never
participated nor was even aware of any meeting or resolution authorizing the mortgage or
sale of the subject premises (see par. 8, affidavit of Virgilio E. Dulay, dated May 31, 1984,
p. 14, Exh. "21") is difficult to believe. On the contrary, he is very much privy to the
transactions involved. To begin with, he is a incorporator and one of the board of directors
designated at the time of the organization of Manuel R. Dulay Enterprise, Inc. In ordinary
parlance, the said entity is loosely referred to as a "family corporation". The nomenclature, if
imprecise, however, fairly reflects the cohesiveness of a group and the parochial instincts of
the individual members of such an aggrupation of which Manuel R. Dulay Enterprises, Inc.
is typical: four-fifths of its incorporators being close relatives namely, three (3) children and
their father whose name identifies their corporation (Articles of Incorporation of Manuel R.
Dulay Enterprises, Inc. Exh. "31-A"). 22
Besides, the fact that petitioner Virgilio Dulay on June 24, 1975 executed an affidavit 23 that he was a signatory
witness to the execution of the post-dated Deed of Absolute Sale of the subject property in favor of private
respondent Torres indicates that he was aware of the transaction executed between his father and private
respondents and had, therefore, adequate knowledge about the sale of the subject property to private
respondents.
Consequently, petitioner corporation is liable for the act of Manuel Dulay and the sale of the subject property to
private respondents by Manuel Dulay is valid and binding. As stated by the trial court:
. . . the sale between Manuel R. Dulay Enterprises, Inc. and the spouses Maria Theresa V.
Veloso and Castrense C. Veloso, was a corporate act of the former and not a personal
transaction of Manuel R. Dulay. This is so because Manuel R. Dulay was not only president
and treasurer but also the general manager of the corporation. The corporation was a closed
family corporation and the only non-relative in the board of directors was Atty. Plaridel C.
Jose who appeared on paper as the secretary. There is no denying the fact, however, that
Maria Socorro R. Dulay at times acted as secretary. . . ., the Court can not lose sight of the
fact that the Manuel R. Dulay Enterprises, Inc. is a closed family corporation where the
incorporators and directors belong to one single family. It cannot be concealed that Manuel
R. Dulay as president, treasurer and general manager almost had absolute control over the
business and affairs of the corporation. 24
Moreover, the appellate courts will not disturb the findings of the trial judge unless he has plainly overlooked
certain facts of substance and value that, if considered, might affect the result of the case, 25 which is not present
in the instant case.
Petitioners' contention that private respondent Torres never acquired ownership over the subject property since
the latter was never in actual possession of the subject property nor was the property ever delivered to him is
also without merit.
15
Paragraph 1, Article 1498 of the New Civil Code provides:
When the sale is made through a public instrument, the execution thereof shall be equivalent
to the delivery of the thing which is the object of the contract, if from the deed the contrary
do not appear or cannot clearly be inferred.
Under the aforementioned article, the mere execution of the deed of sale in a public document is equivalent to
the delivery of the property. Likewise, this Court had held that:
It is settled that the buyer in a foreclosure sale becomes the absolute owner of the property
purchased if it is not redeemed during the period of one year after the registration of the sale.
As such, he is entitled to the possession of the said property and can demand it at any time
following the consolidation of ownership in his name and the issuance to him of a new
transfer certificate of title. The buyer can in fact demand possession of the land even during
the redemption period except that he has to post a bond in accordance with Section 7 of Act
No. 3133 as amended. No such bond is required after the redemption period if the property is
not redeemed. Possession of the land then becomes an absolute right of the purchaser as
confirmed owner. 26
Therefore, prior physical delivery or possession is not legally required since the execution of the Deed of Sale in
deemed equivalent to delivery.
Finally, we hold that the respondent appellate court did not err in denying petitioner's motion for reconsideration
despite the fact that private respondents failed to submit their comment to said motion as required by the
respondent appellate court from resolving petitioners' motion for reconsideration without the comment of the
private respondent which was required merely to aid the court in the disposition of the motion. The courts are as
much interested as the parties in the early disposition of cases before them. To require otherwise would
unnecessarily clog the courts' dockets.
WHEREFORE, the petition is DENIED and the decision appealed from is hereby AFFIRMED.
SO ORDERED.
Financing Corporation vs. Teodoro
93 Phil 678
G.R. No. L-4900, August 31, 1953
FINANCING CORPORATION OF THE PHILIPPINES and J. AMADO ARANETA, petitioners,
vs.
HON. JOSE TEODORO, Judge of the Court of First Instance of Negros Occidental, Branch II, and
ENCARNACION LIZARES VDA. DE PANLILIO, respondents.
Vicente Hilado for petitioners.
Antonio Barredo for respondents.
MONTEMAYOR, J.:
In civil case No. 1924 of the Court of First Instance of Negros Occidental, Asuncion Lopez Vda. de Lizares,
Encarnacion Lizares Vda. de Panlilio and Efigenia Vda. de Paredes, in their own behalf and in behalf of the
other minority stockholders of the Financing Corporation of the Philippines, filed a complaint against the said
corporation and J. Amado Araneta, its president and general manager, claiming among other things alleged gross
mismanagement and fraudulent conduct of the corporate affairs of the defendant corporation by J. Amado
Araneta, and asking that the corporation be dissolved; that J. Amado Araneta be declared personally accountable
for the amounts of the unauthorized and fraudulent disbursements and disposition of assets made by him, and
that he be required to account for said assets, and that pending trial and disposition of the case on its merits a
receiver be appointed to take possession of the books, records and assets of the defendant corporation
preparatory to its dissolution and liquidation and distribution of the assets. Over the strong objection of the
defendants, the trial court presided by respondent Judge Jose Teodoro, granted the petition for the appointment
of a receiver and designated Mr. Alfredo Yulo as such receiver with a bond of P50,000. Failing to secure a
reconsideration of the order appointing a receiver, the defendants in said case, Financing Corporation of the
Philippines and J. Amado Araneta, as petitioners, have filed the present petition for certiorari with preliminary
injunction to revoke and set aside the order. Acting upon that part of the petition asking for a writ of preliminary
injunction, a majority of the court granted the same upon the filing of a bond by the petitioners in the sum of
P50,000.
The main contention of the petitioners in opposing the appointment of a receiver in this case is that said
appointment is merely an auxiliary remedy; that the principal remedy sought by the respondents in the action in
Negros Occidental was the dissolution of the Financing Corporation of the Philippines; that according to the law
a suit for the dissolution of a corporation can be brought and maintained only by the State through its legal
counsel, and that respondents, much less the minority stockholders of said corporation, have no right or
personality to maintain the action for dissolution, and that inasmuch as said action cannot be maintained legally
by the respondents, then the auxiliary remedy for the appointment of a receiver has no basis.
True it is that the general rule is that the minority stockholders of a corporation cannot sue and demand its
dissolution. However, there are cases that hold that even minority stockholders may ask for dissolution, this,
under the theory that such minority members, if unable to obtain redress and protection of their rights within the
corporation, must not and should not be left without redress and remedy. This was what probably prompted this
Court to state in the case of Hall, et al. vs. Judge Piccio,* G.R. No. L-2598 (47 Off. Gaz. No. 12 Supp., p. 200)
that even the existence of a de jure corporation may be terminated in a private suit for its dissolution by the
stockholders without the intervention of the State. It was therein further held that although there might be some
room for argument on the right of minority stockholders to ask for dissolution,-that question does not affect the
court's jurisdiction over the case, and that the remedy by the party dissatisfied was to appeal from the decision of
the trial court. We repeat that although as a rule, minority stockholders of a corporation may not ask for its
dissolution in a private suit, and that such action should be brought by the Government through its legal officer
in a quo warranto case, at their instance and request, there might be exceptional cases wherein the intervention of
the State, for one reason or another, cannot be obtained, as when the State is not interested because the complaint
is strictly a matter between the stockholders and does not involve, in the opinion of the legal officer of the
Government, any of the acts or omissions warranting quo warranto proceedings, in which minority stockholders
are entitled to have such dissolution. When such action or private suit is brought by them, the trial court had
jurisdiction and may or may not grant the prayer, depending upon the facts and circumstances attending it. The
trial court's decision is of course subject to review by the appellate tribunal. Having such jurisdiction, the
appointment of a receiver pendente lite is left to the sound discretion of the trial court. As was said in the case
of Angeles vs. Santos (64 Phil., 697), the action having been properly brought and the trial court having
entertained the same, it was within the power of said court upon proper showing to appoint a receiverpendente
16
lite for the corporation; that although the appointment of a receiver upon application of the minority stockholders
is a power to be exercised with great caution, nevertheless, it should be exercised necessary in order not to
entirely ignore and disregard the rights of said minority stockholders, especially when said minority stockholders
are unable to obtain redress and protection of their rights within the corporation itself.
In that civil case No. 1924 of Negros Occidental court, allegations of mismanagement and misconduct by its
President and Manager were made, specially in connection with the petition for the appointment of a receiver. in
order to have an idea of the seriousness of said allegations, we reproduce a pertinent portion of the order of
respondent Judge Teodoro dated June 23, 1951, subject of these certiorari proceedings:
Considering plaintiffs' complaint and verified motion for appointment of a receiver together, as they
have been treated jointly in the opposition of the defendants, the grounds of the prayer for receivership
may be briefly stated to be: (1) imminent danger of insolvency; (2) fraud and mismanagement, such as,
particularly, (a) wrongful and unauthorized diversion from corporate purposes and use for personal
benefit of defendant Araneta, for the benefit of the corporations under his control and of which he is
majority stockholder and/or for the benefit of his relatives, personal friends and the political
organization to which he is affiliated of approximately over one and a half million pesos of the funds
of the defendant corporation in the form of uncollected allowances and loans, either without or with
uncollected interest, and either unsecured or insufficiently secured, and sometimes with a securities
appearing in favor of defendant Araneta as if the funds advanced or loaned were his own; (b)
unauthorized and profitless pledging of securities owned by defendant corporation to secure
obligations amounting to P588,645.34 of another corporation controlled by defendant Araneta; (c)
unauthorized and profitless using of the name of the defendant corporation in the shipping of sugar
belonging to other corporations controlled by defendant Araneta to the benefit of said corporations in
the amount of at least P104,343.36; (d) refusal by defendant Araneta to endorse to the defendant
corporation shares of stock and other securities belonging to it but which are still in his name; (e)
negligent failure to endorse other shares of stock belonging to defendant corporation but still in the
names of the respective vendors; and (f) illegal and unauthorized transfer and deposit in the United
States of America of 6,426,281 shares of the Atok-Big Wedge Mining Company; (3) violations of the
corporation law and the by-laws of the corporation such as (a) refusal to allow minority stockholders
to examine the books and records of the corporation; (b) failure to call and hold stockholders' and
directors' meetings; (c) virtual disregard and ignoring of the board of directors by defendant Araneta
who has been and is conducting the affairs of the corporation under his absolute control and for his
personal benefit and for the benefit of the corporations controlled by him, to the prejudice and in
disregard of the rights of the plaintiffs and other minority stockholders; and (d) irregularity in the
keeping and (e) errors and omissions in the books and failure of the same to reflect the real and actual
transactions of the defendant corporations; (4) failure to achieve the fundamental purpose of the
corporation; (5) if administration, possession and control of the affairs, books, etc. of defendant
corporation are left in the hands of the defendant Araneta and the present corporate officials, under his
power and influence, the remaining assets of the corporation are in danger of being further dissipated,
wasted or lost and of becoming ultimately unavailable for distribution among its stockholders; and (6)
the best means to protect and preserve the assets of defendant corporation is the appointment of a
receiver.
In conclusion, we hold that the trial court through respondent Judge Teodoro had jurisdiction and properly
entertained the original case; that he also had jurisdiction to appoint a receiver pendente lite, and considering the
allegations made in connection with the petition for the appointment of a receiver, he neither exceeded his
jurisdiction nor abused his discretion in appointing a receiver. The petition for certiorari is hereby denied, with
costs. The writ of preliminary injunction heretofore issued is hereby ordered dissolved.
Cagayan Fishing Development v. Sandiko
65 Phil 223
G.R. No. L-43350 December 23, 1937
CAGAYAN FISHING DEVELOPMENT CO., INC., plaintiff-appellant,
vs.
TEODORO SANDIKO, defendant-appellee.
Arsenio P. Dizon for appellant.
Sumulong, Lavides and Sumulong for appellee.
LAUREL, J.:
This is an appeal from a judgment of the Court of First Instance of Manila absolving the defendant from the
plaintiff's complaint.
Manuel Tabora is the registered owner of four parcels of land situated in the barrio of Linao, town of Aparri,
Province of Cagayan, as evidenced by transfer certificate of title No. 217 of the land records of Cagayan, a copy
of which is in evidence as Exhibit 1. To guarantee the payment of a loan in the sum of P8,000, Manuel Tabora,
on August 14, 1929, executed in favor of the Philippine National Bank a first mortgage on the four parcels of
land above-mentioned. A second mortgage in favor of the same bank was in April of 1930 executed by Tabora
over the same lands to guarantee the payment of another loan amounting to P7,000. A third mortgage on the
same lands was executed on April 16, 1930 in favor of Severina Buzon to whom Tabora was indebted in the sum
of P2,9000. These mortgages were registered and annotations thereof appear at the back of transfer certificate of
title No. 217.
On May 31, 1930, Tabora executed a public document entitled "Escritura de Transpaso de Propiedad Inmueble"
(Exhibit A) by virtue of which the four parcels of land owned by him was sold to the plaintiff company, said to
under process of incorporation, in consideration of one peso (P1) subject to the mortgages in favor of the
Philippine National Bank and Severina Buzon and, to the condition that the certificate of title to said lands shall
not be transferred to the name of the plaintiff company until the latter has fully and completely paid Tabora's
indebtedness to the Philippine National Bank.
The plaintiff company filed its article incorporation with the Bureau of Commerce and Industry on October 22,
1930 (Exhibit 2). A year later, on October 28, 1931, the board of directors of said company adopted a resolution
(Exhibit G) authorizing its president, Jose Ventura, to sell the four parcels of lands in question to Teodoro
Sandiko for P42,000. Exhibits B, C and D were thereafter made and executed. Exhibit B is a deed of sale
executed before a notary public by the terms of which the plaintiff sold ceded and transferred to the defendant all
its right, titles, and interest in and to the four parcels of land described in transfer certificate in turn obligated
himself to shoulder the three mortgages hereinbefore referred to. Exhibit C is a promisory note for P25,300.
drawn by the defendant in favor of the plaintiff, payable after one year from the date thereof. Exhibit D is a deed
of mortgage executed before a notary public in accordance with which the four parcels of land were given a
security for the payment of the promissory note, Exhibit C. All these three instrument were dated February 15,
1932.
The defendant having failed to pay the sum stated in the promissory note, plaintiff, on January 25, 1934, brought
this action in the Court of First Instance of Manila praying that judgment be rendered against the defendant for
the sum of P25,300, with interest at legal rate from the date of the filing of the complaint, and the costs of the
suits. After trial, the court below, on December 18, 1934, rendered judgment absolving the defendant, with costs
17
against the plaintiff. Plaintiff presented a motion for new trial on January 14, 1935, which motion was denied by
the trial court on January 19 of the same year. After due exception and notice, plaintiff has appealed to this court
and makes an assignment of various errors.
In dismissing the complaint against the defendant, the court below, reached the conclusion that Exhibit B is
invalid because of vice in consent and repugnancy to law. While we do not agree with this conclusion, we have
however voted to affirm the judgment appealed from the reasons which we shall presently state.
The transfer made by Tabora to the Cagayan fishing Development Co., Inc., plaintiff herein, was affected on
May 31, 1930 (Exhibit A) and the actual incorporation of said company was affected later on October 22, 1930
(Exhibit 2). In other words, the transfer was made almost five months before the incorporation of the company.
Unquestionably, a duly organized corporation has the power to purchase and hold such real property as the
purposes for which such corporation was formed may permit and for this purpose may enter into such contracts
as may be necessary (sec. 13, pars. 5 and 9, and sec. 14, Act No. 1459). But before a corporation may be said to
be lawfully organized, many things have to be done. Among other things, the law requires the filing of articles of
incorporation (secs. 6 et seq., Act. No. 1459). Although there is a presumption that all the requirements of law
have been complied with (sec. 334, par. 31 Code of Civil Procedure), in the case before us it can not be denied
that the plaintiff was not yet incorporated when it entered into a contract of sale, Exhibit A. The contract itself
referred to the plaintiff as "una sociedad en vias de incorporacion." It was not even a de facto corporation at the
time. Not being in legal existence then, it did not possess juridical capacity to enter into the contract.
Corporations are creatures of the law, and can only come into existence in the manner prescribed by law. As has
already been stated, general law authorizing the formation of corporations are general offers to any persons who
may bring themselves within their provisions; and if conditions precedent are prescribed in the statute, or certain
acts are required to be done, they are terms of the offer, and must be complied with substantially before legal
corporate existence can be acquired. (14 C. J., sec. 111, p. 118.)
That a corporation should have a full and complete organization and existence as an entity before it can enter
into any kind of a contract or transact any business, would seem to be self evident. A corporation, until
organized, has no being, franchises or faculties. Nor do those engaged in bringing it into being have any power
to bind it by contract, unless so authorized by the charter there is not a corporation nor does it possess franchise
or faculties for it or others to exercise, until it acquires a complete existence. (Gent vs. Manufacturers and
Merchant's Mutual Insurance Company, 107 Ill., 652, 658.)
Boiled down to its naked reality, the contract here (Exhibit A) was entered into not between Manuel Tabora and
a non-existent corporation but between the Manuel Tabora as owner of the four parcels of lands on the one hand
and the same Manuel Tabora, his wife and others, as mere promoters of a corporations on the other hand. For
reasons that are self-evident, these promoters could not have acted as agent for a projected corporation since that
which no legal existence could have no agent. A corporation, until organized, has no life and therefore no
faculties. It is, as it were, a child in ventre sa mere. This is not saying that under no circumstances may the acts
of promoters of a corporation be ratified by the corporation if and when subsequently organized. There are, of
course, exceptions (Fletcher Cyc. of Corps., permanent edition, 1931, vol. I, secs. 207 et seq.), but under the
peculiar facts and circumstances of the present case we decline to extend the doctrine of ratification which would
result in the commission of injustice or fraud to the candid and unwary.(Massachusetts rule, Abbott vs.
Hapgood, 150 Mass., 248; 22 N. E. 907, 908; 5 L. R. A., 586; 15 Am. St. Rep., 193; citing English cases;
Koppel vs. Massachusetts Brick Co., 192 Mass., 223; 78 N. E., 128; Holyoke Envelope Co., vs. U. S. Envelope
Co., 182 Mass., 171; 65 N. E., 54.) It should be observed that Manuel Tabora was the registered owner of the
four parcels of land, which he succeeded in mortgaging to the Philippine National Bank so that he might have
the necessary funds with which to convert and develop them into fishery. He appeared to have met with financial
reverses. He formed a corporation composed of himself, his wife, and a few others. From the articles of
incorporation, Exhibit 2, it appears that out of the P48,700, amount of capital stock subscribed, P45,000 was
subscribed by Manuel Tabora himself and P500 by his wife, Rufina Q. de Tabora; and out of the P43,300,
amount paid on subscription, P42,100 is made to appear as paid by Tabora and P200 by his wife. Both Tabora
and His wife were directors and the latter was treasurer as well. In fact, to this day, the lands remain inscribed in
Tabora's name. The defendant always regarded Tabora as the owner of the lands. He dealt with Tabora directly.
Jose Ventura, president of the plaintiff corporation, intervened only to sign the contract, Exhibit B, in behalf of
the plaintiff. Even the Philippine National Bank, mortgagee of the four parcels of land, always treated Tabora as
the owner of the same. (See Exhibits E and F.) Two civil suits (Nos. 1931 and 38641) were brought against
Tabora in the Court of First Instance of Manila and in both cases a writ of attachment against the four parcels of
land was issued. The Philippine National Bank threatened to foreclose its mortgages. Tabora approached the
defendant Sandiko and succeeded in the making him sign Exhibits B, C, and D and in making him, among other
things, assume the payment of Tabora's indebtedness to the Philippine National Bank. The promisory note,
Exhibit C, was made payable to the plaintiff company so that it may not attached by Tabora's creditors, two of
whom had obtained writs of attachment against the four parcels of land.
If the plaintiff corporation could not and did not acquire the four parcels of land here involved, it follows that it
did not possess any resultant right to dispose of them by sale to the defendant, Teodoro Sandiko.
Some of the members of this court are also of the opinion that the transfer from Manuel Tabora to the Cagayan
Fishing Development Company, Inc., which transfer is evidenced by Exhibit A, was subject to a condition
precedent (condicion suspensiva), namely, the payment of the mortgage debt of said Tabora to the Philippine
National Bank, and that this condition not having been complied with by the Cagayan Fishing Development
Company, Inc., the transfer was ineffective. (Art. 1114, Civil Code; Wise & Co. vs. Kelly and Lim, 37 Phil.,
696; Manresa, vol. 8, p. 141.) However, having arrived at the conclusion that the transfer by Manuel Tabora to
the Cagayan Fishing Development Company, Inc. was null because at the time it was affected the corporation
was non-existent, we deem it unnecessary to discuss this point.lawphil.net
The decision of the lower court is accordingly affirmed, with costs against the appellant. So Ordered.
Rizal Light & Ice Co. v. Municipality
25 SCRA 285
G.R. No. L-20993 September 28, 1968
RIZAL LIGHT & ICE CO., INC., petitioner, vs.THE MUNICIPALITY OF MORONG, RIZAL and THE
PUBLIC SERVICE COMMISSION, respondents.
----------------------------
G.R. No. L-21221 September 28, 1968
RIZAL LIGHT & ICE CO., INC., petitioner, vs.THE PUBLIC SERVICE COMMISSION and
MORONG ELECTRIC CO., INC., respondents.
Amado A. Amador, Jr. for petitioner.
Atilano C. Bautista and Pompeyo F. Olivas for respondents.
18
ZALDIVAR, J.:
These two cases, being interrelated, are decided together.
Case G.R. No. L-20993 is a petition of the Rizal Light & Ice Co., Inc. to review and set aside the orders of
respondent Public Service Commission, 1 dated August 20, 1962, and February 15, 1963, in PSC Case No.
39716, cancelling and revoking the certificate of public convenience and necessity and forfeiting the franchise of
said petitioner. In the same petition, the petitioner prayed for the issuance of a writ of preliminary injunction ex
parte suspending the effectivity of said orders and/or enjoining respondents Commission and/or Municipality of
Morong, Rizal, from enforcing in any way the cancellation and revocation of petitioner's franchise and certificate
of public convenience during the pendency of this appeal. By resolution of March 12, 1963, this Court denied
the petition for injunction, for lack of merit.
Case G. R. L-21221 is likewise a petition of the Rizal Light & Ice Co., Inc. to review and set aside the decision
of the Commission dated March 13, 1963 in PSC Case No. 62-5143 granting a certificate of public convenience
and necessity to respondent Morong Electric Co., Inc. 2 to operate an electric light, heat and power service in the
municipality of Morong, Rizal. In the petition Rizal Light & Ice Co., Inc. also prayed for the issuance of a writ
of preliminary injunction ex parte suspending the effectivity of said decision. Per resolution of this Court, dated
May 6, 1963, said petition for injunction was denied.
The facts, as they appear in the records of both cases, are as follows:
Petitioner Rizal Light & Ice Co., Inc. is a domestic corporation with business address at Morong, Rizal. On
August 15, 1949, it was granted by the Commission a certificate of public convenience and necessity for the
installation, operation and maintenance of an electric light, heat and power service in the municipality of
Morong, Rizal.
In an order dated December 19, 1956, the Commission required the petitioner to appear before it on February 18,
1957 to show cause why it should not be penalized for violation of the conditions of its certificate of public
convenience and the regulations of the Commission, and for failure to comply with the directives to raise its
service voltage and maintain them within the limits prescribed in the Revised Order No. 1 of the Commission,
and to acquire and install a kilowattmeter to indcate the load in kilowatts at any particular time of the generating
unit. 3
For failure of the petitioner to appear at the hearing on February 18, 1957, the Commission ordered the
cancellation and revocation of petitioner's certificate of public convenience and necessity and the forfeiture of its
franchise. Petitioner moved for reconsideration of said order on the ground that its manager, Juan D. Francisco,
was not aware of said hearing. Respondent municipality opposed the motion alleging that petitioner has not
rendered efficient and satisfactory service and has not complied with the requirements of the Commission for the
improvement of its service. The motion was set for hearing and Mr. Pedro S. Talavera, Chief, Industrial Division
of the Commission, was authorized to conduct the hearing for the reception of the evidence of the parties. 4
Finding that the failure of the petitioner to appear at the hearing set for February 18, 1957 — the sole basis of the
revocation of petitioner's certificate — was really due to the illness of its manager, Juan D. Francisco, the
Commission set aside its order of revocation. Respondent municipality moved for reconsideration of this order
of reinstatement of the certificate, but the motion was denied.
In a petition dated June 25, 1958, filed in the same case, respondent municipality formally asked the
Commission to revoke petitioner's certificate of public convenience and to forfeit its franchise on the ground,
among other things, that it failed to comply with the conditions of said certificate and franchise. Said petition
was set for hearing jointly with the order to show cause. The hearings had been postponed several times.
Meanwhile, inspections had been made of petitioner's electric plant and installations by the engineers of the
Commission, as follows: April 15, 1958 by Engineer Antonio M. Alli; September 18, 1959, July 12-13, 1960,
and June 21-24, 1961, by Engineer Meliton S. Martinez. The inspection on June 21-24, 1961 was made upon the
request of the petitioner who manifested during the hearing on December 15, 1960 that improvements have been
made on its service since the inspection on July 12-13, 1960, and that, on the basis of the inspection report to be
submitted, it would agree to the submission of the case for decision without further hearing.
When the case was called for hearing on July 5, 1961, petitioner failed to appear. Respondent municipality was
then allowed to present its documentary evidence, and thereafter the case was submitted for decision.
On July 7, 1961, petitioner filed a motion to reopen the case upon the ground that it had not been furnished with
a copy of the report of the June 21-24, 1961 inspection for it to reply as previously agreed. In an order dated
August 25, 1961, petitioner was granted a period of ten (10) days within which to submit its written reply to said
inspection report, on condition that should it fail to do so within the said period the case would be considered
submitted for decision. Petitioner failed to file the reply. In consonance with the order of August 25, 1961,
therefore, the Commission proceeded to decide the case. On July 29, 1962 petitioner's electric plant was burned.
In its decision, dated August 20, 1962, the Commission, on the basis of the inspection reports of its aforenamed
engineers, found that the petitioner had failed to comply with the directives contained in its letters dated May 21,
1954 and September 4, 1954, and had violated the conditions of its certificate of public convenience as well as
the rules and regulations of the Commission. The Commission concluded that the petitioner "cannot render the
efficient, adequate and satisfactory electric service required by its certificate and that it is against public interest
to allow it to continue its operation." Accordingly, it ordered the cancellation and revocation of petitioner's
certificate of public convenience and the forfeiture of its franchise.
On September 18, 1962, petitioner moved for reconsideration of the decision, alleging that before its electric
plant was burned on July 29, 1962, its service was greatly improved and that it had still existing investment
which the Commission should protect. But eight days before said motion for reconsideration was filed, or on
September 10, 1962, Morong Electric, having been granted a municipal franchise on May 6, 1962 by respondent
municipality to install, operate and maintain an electric heat, light and power service in said municipality —
approved by the Provincial Board of Rizal on August 31, 1962 — filed with the Commission an application for a
certificate of public convenience and necessity for said service. Said application was entitled "Morong Electric
Co., Inc., Applicant", and docketed as Case No. 62-5143.
Petitioner opposed in writing the application of Morong Electric, alleging among other things, that it is a holder
of a certificate of public convenience to operate an electric light, heat and power service in the same
municipality of Morong, Rizal, and that the approval of said application would not promote public convenience,
but would only cause ruinous and wasteful competition. Although the opposition is dated October 6, 1962, it was
actually received by the Commission on November 8, 1962, or twenty four days after the order of general
default was issued in open court when the application was first called for hearing on October 15, 1962. On
November 12, 1962, however, the petitioner filed a motion to lift said order of default. But before said motion
could be resolved, petitioner filed another motion, dated January 4, 1963, this time asking for the dismissal of
the application upon the ground that applicant Morong Electric had no legal personality when it filed its
19
application on September 10, 1962, because its certificate of incorporation was issued by the Securities and
Exchange Commission only on October 17, 1962. This motion to dismiss was denied by the Commission in a
formal order issued on January 17, 1963 on the premise that applicant Morong Electric was a de facto
corporation. Consequently, the case was heard on the merits and both parties presented their respective evidence.
On the basis of the evidence adduced, the Commission, in its decision dated March 13, 1963, found that there
was an absence of electric service in the municipality of Morong and that applicant Morong Electric, a Filipino-
owned corporation duly organized and existing under the laws of the Philippines, has the financial capacity to
maintain said service. These circumstances, considered together with the denial of the motion for reconsideration
filed by petitioner in Case No. 39715 on February, 15, 1963, such that as far as the Commission was concerned
the certificate of the petitioner was already declared revoked and cancelled, the Commission approved the
application of Morong Electric and ordered the issuance in its favor of the corresponding certificate of public
convenience and necessity.1awphîl.nèt
On March 8, 1963, petitioner filed with this Court a petition to review the decision in Case No. 39715 (now G.
R. No. L-20993). Then on April 26, 1963, petitioner also filed a petition to review the decision in Case No. 62-
5143 (now G. R. No. L-21221).
In questioning the decision of the Commission in Case No. 39715, petitioner contends: (1) that the Commission
acted without or in excess of its jurisdiction when it delegated the hearing of the case and the reception of
evidence to Mr. Pedro S. Talavera who is not allowed by law to hear the same; (2) that the cancellation of
petitioner's certificate of public convenience was unwarranted because no sufficient evidence was adduced
against the petitioner and that petitioner was not able to present evidence in its defense; (3) that the Commission
failed to give protection to petitioner's investment; and (4) that the Commission erred in imposing the extreme
penalty of revocation of the certificate.
In questioning the decision in Case No. 62-5143, petitioner contends: (1) that the Commission erred in denying
petitioner's motion to dismiss and proceeding with the hearing of the application of the Morong Electric; (2) that
the Commission erred in granting Morong Electric a certificate of public convenience and necessity since it is
not financially capable to render the service; (3) that the Commission erred when it made findings of facts that
are not supported by the evidence adduced by the parties at the trial; and (4) that the Commission erred when it
did not give to petitioner protection to its investment — a reiteration of the third assignment of error in the other
case.1awphîl.nèt
We shall now discuss the appeals in these two cases separately.
G.R. No. L-20993
1. Under the first assignment of error, petitioner contends that while Mr. Pedro S. Talavera, who conducted the
hearings of the case below, is a division chief, he is not a lawyer. As such, under Section 32 of Commonwealth
Act No. 146, as amended, the Commission should not have delegated to him the authority to conduct the
hearings for the reception of evidence of the parties.
We find that, really, Mr. Talavera is not a lawyer. 5 Under the second paragraph of Section 32 of
Commonwealth Act No. 146, as amended, 6 the Commission can only authorize a division chief to hear and
investigate a case filed before it if he is a lawyer. However, the petitioner is raising this question for the first time
in this appeal. The record discloses that petitioner never made any objection to the authority of Mr. Talavera to
hear the case and to receive the evidence of the parties. On the contrary, we find that petitioner had appeared and
submitted evidence at the hearings conducted by Mr. Talavera, particularly the hearings relative to the motion
for reconsideration of the order of February 18, 1957 cancelling and revoking its certificate. We also find that,
through counsel, petitioner had entered into agreements with Mr. Talavera, as hearing officer, and the counsel
for respondent municipality, regarding procedure in order to abbreviate the proceedings. 7 It is only after the
decision in the case turned out to be adverse to it that petitioner questioned the proceedings held before Mr.
Talavera.
This Court in several cases has ruled that objection to the delegation of authority to hear a case filed before the
Commission and to receive the evidence in connection therewith is a procedural, not a jurisdictional point, and is
waived by failure to interpose timely the objection and the case had been decided by the Commission. 8 Since
petitioner has never raised any objection to the authority of Mr. Talavera before the Commission, it should be
deemed to have waived such procedural defect, and consonant with the precedents on the matter, petitioner's
claim that the Commission acted without or in excess of jurisdiction in so authorizing Mr. Talavera should be
dismissed. 9
2. Anent the second assigned error, the gist of petitioner's contention is that the evidence — consisting of
inspection reports — upon which the Commission based its decision is insufficient and untrustworthy in that (1)
the authors of said reports had not been put to test by way of cross-examination; (2) the reports constitute only
one side of the picture as petitioner was not able to present evidence in its defense; (3) judicial notice was not
taken of the testimony of Mr. Harry B. Bernardino, former mayor of respondent municipality, in PSC Case No.
625143 (the other case, G. R. No. L-21221) to the effect that the petitioner had improved its service before its
electric power plant was burned on July 29, 1962 — which testimony contradicts the inspection reports; and (4)
the Commission acted both as prosecutor and judge — passing judgment over the very same evidence presented
by it as prosecutor — a situation "not conducive to the arrival at just and equitable decisions."
Settled is the rule that in reviewing the decision of the Public Service Commission this Court is not required to
examine the proof de novo and determine for itself whether or not the preponderance of evidence really justifies
the decision. The only function of this Court is to determine whether or not there is evidence before the
Commission upon which its decision might reasonably be based. This Court will not substitute its discretion for
that of the Commission on questions of fact and will not interfere in the latter's decision unless it clearly appears
that there is no evidence to support it. 10 Inasmuch as the only function of this Court in reviewing the decision
of the Commission is to determine whether there is sufficient evidence before the Commission upon which its
decision can reasonably be based, as it is not required to examine the proof de novo, the evidence that should be
made the basis of this Court's determination should be only those presented in this case before the Commission.
What then was the evidence presented before the Commission and made the basis of its decision subject of the
present appeal? As stated earlier, the Commission based its decision on the inspection reports submitted by its
engineers who conducted the inspection of petitioner's electric service upon orders of the Commission. 11 Said
inspection reports specify in detail the deficiencies incurred, and violations committed, by the petitioner
resulting in the inadequacy of its service. We consider that said reports are sufficient to serve reasonably as bases
of the decision in question. It should be emphasized, in this connection that said reports, are not mere
documentary proofs presented for the consideration of the Commission, but are the results of the Commission's
own observations and investigations which it can rightfully take into consideration, 12 particularly in this case
where the petitioner had not presented any evidence in its defense, and speaking of petitioner's failure to present
evidence, as well as its failure to cross-examine the authors of the inspection reports, petitioner should not
complain because it had waived not only its right to cross-examine but also its right to present evidence. Quoted
hereunder are the pertinent portions of the transcripts of the proceedings where the petitioner, through counsel,
manifested in clear language said waiver and its decision to abide by the last inspection report of Engineer
Martinez:
20
 Proceedings of December 15, 1960
COMMISSION:
It appears at the last hearing of this case on September 23, 1960, that an engineer of this Commission has been
ordered to make an inspection of all electric services in the province of Rizal and on that date the engineer of this
Commission is still undertaking that inspection and it appears that the said engineer had actually made that
inspection on July 12 and 13, 1960. The engineer has submitted his report on November 18, 1960 which is
attached to the records of this case.
ATTY. LUQUE (Councel for Petitioner):
... (W)e respectfully state that while the report is, as I see it attached to the records, clear and very thorough, it
was made sometime July of this year and I understand from the respondent that there is some improvement since
this report was made ... we respectfully request that an up-to-date inspection be made ... . An inspector of this
Commission can be sent to the plant and considering that the engineer of this Commission, Engineer Meliton
Martinez, is very acquainted to the points involved we pray that his report will be used by us for the reason that
he is a technical man and he knows well as he has done a good job and I think our proposition would expedite
the matter. We sincerely believe that the inspection report will be the best evidence to decide this matter.
xxx xxx xxx
ATTY. LUQUE:
... This is a very important matter and to show the good faith of respondent in this case we will not even cross-
examine the engineer when he makes a new report. We will agree to the findings and, your honor please,
considering as we have manifested before that Engineer Martinez is an experienced engineer of this Commission
and the points reported by Engineer Martinez on the situation of the plant now will prevent the necessity of
having a hearing, of us bringing new evidence and complainant bringing new evidence. ... .
xxx xxx xxx
COMMISSION (to Atty. Luque):
Q Does the Commission understand from the counsel for applicant that if the motion is granted he will
submit this order to show cause for decision without any further hearing and the decision will be based on the
report of the engineer of this Commission?
A We respectfully reply in this manner that we be allowed or be given an opportunity just to read the
report and 99%, we will agree that the report will be the basis of that decision. We just want to find out the
contents of the report, however, we request that we be furnished with a copy of the report before the hearing so
that we will just make a manifestation that we will agree.
COMMISSION (to Atty. Luque):
Q In order to prevent the delay of the disposition of this case the Commission will allow counsel for the
applicant to submit his written reply to the report that the engineer of this Commission. Will he submit this case
without further hearing upon the receipt of that written reply?
A Yes, your honor.
Proceedings of August 25, 1961
ATTY. LUQUE (Counsel for petitioner):
In order to avoid any delay in the consideration of this case we are respectfully move (sic) that instead of our
witnesses testifying under oath that we will submit a written reply under oath together with the memorandum
within fifteen (15) days and we will furnish a copy and upon our submission of said written reply under oath and
memorandum we consider this case submitted. This suggestion is to abbreviate the necessity of presenting
witnesses here which may prolong the resolution of this case.
ATTY. OLIVAS (Counsel for respondent municipality):
I object on the ground that there is no resolution by this Commission on the action to reopen the case and second
this case has been closed.
ATTY. LUQUE:
With regard to the testimony on the ground for opposition we respectfully submit to this Commission our motion
to submit a written reply together with a memorandum. Also as stated to expedite the case and to avoid further
hearing we will just submit our written reply. According to our records we are furnished with a copy of the
report of July 17, 1961. We submit your honor.
xxx xxx xxx
COMMISSION:
To give applicant a chance to have a day in court the Commission grants the request of applicant that it be given
10 days within which to submit a written reply on the report of the engineer of the Commission who inspected
the electric service, in the municipality of Morong, Rizal, and after the submission of the said written reply
within 10 days from today this case will be considered submitted for decision.
The above-quoted manifestation of counsel for the petitioner, specifically the statement referring to the
inspection report of Engineer Martinez as the "best evidence to decide this matter," can serve as an argument
against petitioner's claim that the Commision should have taken into consideration the testimony of Mr.
Bernardino. But the primary reasons why the Commission could not have taken judicial cognizance of said
testimony are: first, it is not a proper subject of judicial notice, as it is not a "known" fact — that is, well
established and authoritatively settled, without qualification and contention; 13 second, it was given in a
subsequent and distinct case after the petitioner's motion for reconsideration was heard by the Commission en
banc and submitted for decision, 14 and third, it was not brought to the attention of the Commission in this case
through an appropriate pleading. 15
21
Regarding the contention of petitioner that the Commission had acted both as prosecutor and judge, it should be
considered that there are two matters that had to be decided in this case, namely, the order to show cause dated
December 19, 1956, and the petition or complaint by respondent municipality dated June 25, 1958. Both matters
were heard jointly, and the record shows that respondent municipality had been allowed to present its evidence
to substantiate its complaint. It can not be said, therefore, that in this case the Commission had acted as
prosecutor and judge. But even assuming, for the sake of argument, that there was a commingling of the
prosecuting and investigating functions, this exercise of dual function is authorized by Section 17(a) of
Commonwealth Act No. 146, as amended, under which the Commission has power "to investigate, upon its own
initiative or upon complaint in writing, any matter concerning any public service as regards matters under its
jurisdiction; to, require any public service to furnish safe, adequate, and proper service as the public interest may
require and warrant; to enforce compliance with any standard, rule, regulation, order or other requirement of this
Act or of the Commission ... ." Thus, in the case of Collector of Internal Revenue vs. Estate of F. P. Buan, L-
11438, July 31, 1958, this Court held that the power of the Commission to cancel and revoke a certificate of
public convenience and necessity may be exercised by it even without a formal charge filed by any interested
party, with the only limitation that the holder of the certificate should be given his day in court.
It may not be amiss to add that when prosecuting and investigating duties are delegated by statute to an
administrative body, as in the case of the Public Service Commission, said body may take steps it believes
appropriate for the proper exercise of said duties, particularly in the manner of informing itself whether there is
probable violation of the law and/or its rules and regulations. It may initiate an investigation, file a complaint,
and then try the charge as preferred. So long as the respondent is given a day in court, there can be no denial of
due process, and objections to said procedure cannot be sustained.
3. In its third assignment of error, petitioner invokes the "protection-of-investment rule" enunciated by this Court
inBatangas Transportation Co. vs. Orlanes 16 in this wise:
The Government having taken over the control and supervision of all public utilities, so long as an operator
under a prior license complies with the terms and conditions of his license and reasonable rules and regulations
for its operation and meets the reasonable demands of the public, it is the duty of the Commission to protect
rather than to destroy his investment by the granting of the second license to another person for the same thing
over the same route of travel. The granting of such a license does not serve its convenience or promote the
interests of the public.
The above-quoted rule, however, is not absolute, for nobody has exclusive right to secure a franchise or a
certificate of public convenience. 17 Where, as in the present case, it has been shown by ample evidence that the
petitioner, despite ample time and opportunity given to it by the Commission, had failed to render adequate,
sufficient and satisfactory service and had violated the important conditions of its certificate as well as the
directives and the rules and regulations of the Commission, the rule cannot apply. To apply that rule
unqualifiedly is to encourage violation or disregard of the terms and conditions of the certificate and the
Commission's directives and regulations, and would close the door to other applicants who could establish,
operate and provide adequate, efficient and satisfactory service for the benefit and convenience of the
inhabitants. It should be emphasized that the paramount consideration should always be the public interest and
public convenience. The duty of the Commission to protect investment of a public utility operator refers only to
operators of good standing — those who comply with the laws, rules and regulations — and not to operators
who are unconcerned with the public interest and whose investments have failed or deteriorated because of their
own fault. 18
4. The last assignment of error assails the propriety of the penalty imposed by the Commission on the petitioner
— that is, the revocation of the certificate and the forfeiture of the franchise. Petitioner contends that the
imposition of a fine would have been sufficient, as had been done by the Commission in cases of a similar
nature.
It should be observed that Section 16(n) of Commonwealth Act No. 146, as amended, confers upon the
Commission ample power and discretion to order the cancellation and revocation of any certificate of public
convenience issued to an operator who has violated, or has willfully and contumaciously refused to comply with,
any order, rule or regulation of the Commission or any provision of law. What matters is that there is evidence to
support the action of the Commission. In the instant case, as shown by the evidence, the contumacious refusal of
the petitioner since 1954 to comply with the directives, rules and regulations of the Commission, its violation of
the conditions of its certificate and its incapability to comply with its commitment as shown by its inadequate
service, were the circumstances that warranted the action of the Commission in not merely imposing a fine but in
revoking altogether petitioner's certificate. To allow petitioner to continue its operation would be to sacrifice
public interest and convenience in favor of private interest.
A grant of a certificate of public convenience confers no property rights but is a mere license or privilege, and
such privilege is forfeited when the grantee fails to comply with his commitments behind which lies the
paramount interest of the public, for public necessity cannot be made to wait, nor sacrificed for private
convenience. (Collector of Internal Revenue v. Estate of F. P. Buan, et al., L-11438 and Santiago Sambrano, et
al. v. PSC, et al., L-11439 & L-11542-46, July 31, 1958)
(T)he Public Service Commission, ... has the power to specify and define the terms and conditions upon which
the public utility shall be operated, and to make reasonable rules and regulations for its operation and the
compensation which the utility shall receive for its services to the public, and for any failure to comply with such
rules and regulations or the violation of any of the terms and conditions for which the license was granted, the
Commission has ample power to enforce the provisions of the license or even to revoke it, for any failure or
neglect to comply with any of its terms and provisions. (Batangas Trans. Co. v. Orlanes, 52 Phil. 455, 460;
emphasis supplied)
Presumably, the petitioner has in mind Section 21 of Commonwealth Act No. 146, as amended, which provides
that a public utility operator violating or failing to comply with the terms and conditions of any certificate, or
any orders, decisions or regulations of the Commission, shall be subject to a fine and that the Commission is
authorized and empowered to impose such fine, after due notice and hearing. It should be noted, however, that
the last sentence of said section states that the remedy provided therein "shall not be a bar to, or affect any other
remedy provided in this Act but shall be cumulative and additional to such remedy or remedies." In other words,
the imposition of a fine may only be one of the remedies which the Commission may resort to, in its discretion.
But that remedy is not exclusive of, or has preference over, the other remedies. And this Court will not substitute
its discretion for that of the Commission, as long as there is evidence to support the exercise of that discretion by
the Commission.
G. R. No. L-21221
Coming now to the other case, let it be stated at the outset that before any certificate may be granted, authorizing
the operation of a public service, three requisites must be complied with, namely: (1) the applicant must be a
citizen of the Philippines or of the United States, or a corporation or co-partnership, association or joint-stock
company constituted and organized under the laws of the Philippines, sixty per centum at least of the stock or
paid-up capital of which belongs entirely to citizens of the Philippines or of the United States; 19 (2) the
22
applicant must be financially capable of undertaking the proposed service and meeting the responsibilities
incident to its operation; 20 and (3) the applicant must prove that the operation of the public service proposed
and the authorization to do business will promote the public interest in a proper and suitable manner. 21
As stated earlier, in the decision appealed from, the Commission found that Morong Electric is a corporation
duly organized and existing under the laws of the Philippines, the stockholders of which are Filipino citizens,
that it is financially capable of operating an electric light, heat and power service, and that at the time the
decision was rendered there was absence of electric service in Morong, Rizal. While the petitioner does not
dispute the need of an electric service in Morong, Rizal, 22 it claims, in effect, that Morong Electric should not
have been granted the certificate of public convenience and necessity because (1) it did not have a corporate
personality at the time it was granted a franchise and when it applied for said certificate; (2) it is not financially
capable of undertaking an electric service, and (3) petitioner was rendering efficient service before its electric
plant was burned, and therefore, being a prior operator its investment should be protected and no new party
should be granted a franchise and certificate of public convenience and necessity to operate an electric service in
the same locality.
1. The bulk of petitioner's arguments assailing the personality of Morong Electric dwells on the proposition that
since a franchise is a contract, 23 at least two competent parties are necessary to the execution thereof, and
parties are not competent except when they are in being. Hence, it is contended that until a corporation has come
into being, in this jurisdiction, by the issuance of a certificate of incorporation by the Securities and Exchange
Commission (SEC) it cannot enter into any contract as a corporation. The certificate of incorporation of the
Morong Electric was issued by the SEC on October 17, 1962, so only from that date, not before, did it acquire
juridical personality and legal existence. Petitioner concludes that the franchise granted to Morong Electric on
May 6, 1962 when it was not yet in esse is null and void and cannot be the subject of the Commission's
consideration. On the other hand, Morong Electric argues, and to which argument the Commission agrees, that it
was a de factocorporation at the time the franchise was granted and, as such, it was not incapacitated to enter
into any contract or to apply for and accept a franchise. Not having been incapacitated, Morong Electric
maintains that the franchise granted to it is valid and the approval or disapproval thereof can be properly
determined by the Commission.
Petitioner's contention that Morong Electric did not yet have a legal personality on May 6, 1962 when a
municipal franchise was granted to it is correct. The juridical personality and legal existence of Morong Electric
began only on October 17, 1962 when its certificate of incorporation was issued by the SEC. 24 Before that date,
or pending the issuance of said certificate of incorporation, the incorporators cannot be considered as de facto
corporation.25 But the fact that Morong Electric had no corporate existence on the day the franchise was granted
in its name does not render the franchise invalid, because later Morong Electric obtained its certificate of
incorporation and then accepted the franchise in accordance with the terms and conditions thereof. This view is
sustained by eminent American authorities. Thus, McQuiuin says:
The fact that a company is not completely incorporated at the time the grant is made to it by a municipality to
use the streets does not, in most jurisdictions, affect the validity of the grant. But such grant cannot take effect
until the corporation is organized. And in Illinois it has been decided that the ordinance granting the franchise
may be presented before the corporation grantee is fully organized, where the organization is completed before
the passage and acceptance. (McQuillin, Municipal Corporations, 3rd Ed., Vol. 12, Chap. 34, Sec. 34.21)
Fletcher says:
While a franchise cannot take effect until the grantee corporation is organized, the franchise may, nevertheless,
be applied for before the company is fully organized.
A grant of a street franchise is valid although the corporation is not created until afterwards. (Fletcher,
Cyclopedia Corp. Permanent Edition, Rev. Vol. 6-A, Sec. 2881)
And Thompson gives the reason for the rule:
(I)n the matter of the secondary franchise the authorities are numerous in support of the proposition that an
ordinance granting a privilege to a corporation is not void because the beneficiary of the ordinance is not fully
organized at the time of the introduction of the ordinance. It is enough that organization is complete prior to the
passage and acceptance of the ordinance. The reason is that a privilege of this character is a mere license to the
corporation until it accepts the grant and complies with its terms and conditions. (Thompson on Corporations,
Vol. 4, 3rd Ed., Sec. 2929) 26
The incorporation of Morong Electric on October 17, 1962 and its acceptance of the franchise as shown by its
action in prosecuting the application filed with the Commission for the approval of said franchise, not only
perfected a contract between the respondent municipality and Morong Electric but also cured the deficiency
pointed out by the petitioner in the application of Morong EIectric. Thus, the Commission did not err in denying
petitioner's motion to dismiss said application and in proceeding to hear the same. The efficacy of the franchise,
however, arose only upon its approval by the Commission on March 13, 1963. The reason is that —
Under Act No. 667, as amended by Act No. 1022, a municipal council has the power to grant electric franchises,
subject to the approval of the provincial board and the President. However, under Section 16(b) of
Commonwealth Act No. 146, as amended, the Public Service Commission is empowered "to approve, subject to
constitutional limitations any franchise or privilege granted under the provisions of Act No. 667, as amended by
Act No. 1022, by any political subdivision of the Philippines when, in the judgment of the Commission, such
franchise or privilege will properly conserve the public interests and the Commission shall in so approving
impose such conditions as to construction, equipment, maintenance, service, or operation as the public interests
and convenience may reasonably require, and to issue certificates of public convenience and necessity when
such is required or provided by any law or franchise." Thus, the efficacy of a municipal electric franchise arises,
therefore, only after the approval of the Public Service Commission. (Almendras vs. Ramos, 90 Phil. 231) .
The conclusion herein reached regarding the validity of the franchise granted to Morong Electric is not
incompatible with the holding of this Court in Cagayan Fishing Development Co., Inc. vs. Teodoro Sandiko
27upon which the petitioner leans heavily in support of its position. In said case this Court held that a
corporation should have a full and complete organization and existence as an entity before it can enter into any
kind of a contract or transact any business. It should be pointed out, however, that this Court did not say in that
case that the rule is absolute or that under no circumstances may the acts of promoters of a corporation be
ratified or accepted by the corporation if and when subsequently organized. Of course, there are exceptions. It
will be noted that American courts generally hold that a contract made by the promoters of a corporation on its
behalf may be adopted, accepted or ratified by the corporation when organized. 28
2. The validity of the franchise and the corporate personality of Morong Electric to accept the same having been
shown, the next question to be resolved is whether said company has the financial qualification to operate an
electric light, heat and power service. Petitioner challenges the financial capability of Morong Electric, by
pointing out the inconsistencies in the testimony of Mr. Jose P. Ingal, president of said company, regarding its
23
assets and the amount of its initial investment for the electric plant. In this connection it should be stated that on
the basis of the evidence presented on the matter, the Commission has found the Morong Electric to be
"financially qualified to install, maintain and operate the proposed electric light, heat and power service." This is
essentially a factual determination which, in a number of cases, this Court has said it will not disturb unless
patently unsupported by evidence. An examination of the record of this case readily shows that the testimony of
Mr. Ingal and the documents he presented to establish the financial capability of Morong Electric provide
reasonable grounds for the above finding of the Commission.
It is now a very well-settled rule in this jurisdiction that the findings and conclusions of fact made by the Public
Service Commission, after weighing the evidence adduced by the parties in a public service case, will not be
disturbed by the Supreme Court unless those findings and conclusions appear not to be reasonably supported by
evidence. (La Mallorca and Pampanga Bus Co. vs. Mercado, L-19120, November 29, 1965)
For purposes of appeal, what is decisive is that said testimonial evidence provides reasonable support for the
Public Service Commission's findings of financial capacity on the part of applicants, rendering such findings
beyond our power to disturb. (Del Pilar Transit vs. Silva, L-21547, July 15, 1966)
It may be worthwhile to mention in this connection that per inspection report dated January 20, 1964 29 of Mr.
Meliton Martinez of the Commission, who inspected the electric service of Morong on January 15-16, 1964,
Morong Electric "is serving electric service to the entire area covered by its approved plan and has constructed
its line in accordance with the plans and specifications approved by the Commission." By reason thereof, it was
recommended that the requests of Morong Electric (1) for the withdrawal of its deposit in the amount of
P1,000.00 with the Treasurer of the Philippines, and (2) for the approval of Resolution No. 160 of the Municipal
Council of Morong, Rizal, exempting the operator from making the additional P9,000.00 deposit mentioned in
its petition, dated September 16, 1963, be granted. This report removes any doubt as to the financial capability of
Morong Electric to operate and maintain an electric light, heat and power service.
3. With the financial qualification of Morong Electric beyond doubt, the remaining question to be resolved is
whether, or not, the findings of fact of the Commission regarding petitioner's service are supported by evidence.
It is the contention of the petitioner that the Commission made some findings of fact prejudicial to its position
but which do not find support from the evidence presented in this case. Specifically, petitioner refers to the
statements or findings that its service had "turned from bad to worse," that it miserably failed to comply with the
oft-repeated promises to bring about the needed improvement, that its equipment is unserviceable, and that it has
no longer any plant site and, therefore, has discredited itself. Petitioner further states that such statements are not
only devoid of evidentiary support but contrary to the testimony of its witness, Mr. Harry Bernardino, who
testified that petitioner was rendering efficient and satisfactory service before its electric plant was burned on
July 29, 1962.
On the face of the decision appealed from, it is obvious that the Commission in describing the kind of service
petitioner was rendering before its certificate was ordered revoked and cancelled, took judicial notice of the
records of the previous case (PSC Case No. 39715) where the quality of petitioner's service had been squarely
put in issue. It will be noted that the findings of the Commission were made notwithstanding the fact that the
aforementioned testimony of Mr. Bernardino had been emphasized and pointed out in petitioner's Memorandum
to the Commission. 30 The implication is simple: that as between the testimony of Mr. Bernardino and the
inspection reports of the engineers of the Commission, which served as the basis of the revocation order, the
Commission gave credence to the latter. Naturally, whatever conclusion or finding of fact that the Commission
arrived at regarding the quality of petitioner's service are not borne out by the evidence presented in this case but
by evidence in the previous case. 31 In this connection, we repeat, the conclusion, arrived at by the Commission
after weighing the conflicting evidence in the two related cases, is a conclusion of fact which this Court will not
disturb.
And it has been held time and again that where the Commission has reached a conclusion of fact after weighing
the conflicting evidence, that conclusion must be respected, and the Supreme Court will not interfere unless it
clearly appears that there is no evidence to support the decision of the Commission. (La Mallorca and Pampanga
Bus Co., Inc. vs. Mercado, L-19120, November 29, 1965 citing Pangasinan Trans. Co., Inc. vs. Dela Cruz, 96
Phil. 278)
For that matter, petitioner's pretension that it has a prior right to the operation of an electric service in Morong,
Rizal, is not tenable; and its plea for protection of its investment, as in the previous case, cannot be entertained.
WHEREFORE, the two decisions of the Public Service Commission, appealed from, should be, as they are
hereby affirmed, with costs in the two cases against petitioner Rizal Light & Ice Co., Inc. It is so ordered.
Caram, Jr. v. Court of Appeals
151 SCRA 372
G.R. No. L-48627 June 30, 1987
FERMIN Z. CARAM, JR. and ROSA O. DE CARAM, petitioners
vs.
THE HONORABLE COURT OF APPEALS and ALBERTO V. ARELLANO, respondents.
CRUZ, J.:
We gave limited due course to this petition on the question of the solidary liability of the petitioners with their
co-defendants in the lower court 1 because of the challenge to the following paragraph in the dispositive portion
of the decision of the respondent court: *
1. Defendants are hereby ordered to jointly and severally pay the plaintiff the amount of P50,000.00 for the
preparation of the project study and his technical services that led to the organization of the defendant
corporation, plus P10,000.00 attorney's fees; 2
The petitioners claim that this order has no support in fact and law because they had no contract whatsoever with
the private respondent regarding the above-mentioned services. Their position is that as mere subsequent
investors in the corporation that was later created, they should not be held solidarily liable with the Filipinas
Orient Airways, a separate juridical entity, and with Barretto and Garcia, their co-defendants in the lower court,
** who were the ones who requested the said services from the private respondent. 3
We are not concerned here with the petitioners' co-defendants, who have not appealed the decision of the
respondent court and may, for this reason, be presumed to have accepted the same. For purposes of resolving this
case before us, it is not necessary to determine whether it is the promoters of the proposed corporation, or the
corporation itself after its organization, that shall be responsible for the expenses incurred in connection with
such organization.
24
The only question we have to decide now is whether or not the petitioners themselves are also and
personallyliable for such expenses and, if so, to what extent.
The reasons for the said order are given by the respondent court in its decision in this wise:
As to the 4th assigned error we hold that as to the remuneration due the plaintiff for the preparation of the project
study and the pre-organizational services in the amount of P50,000.00, not only the defendant corporation but
the other defendants including defendants Caram should be jointly and severally liable for this amount. As we
above related it was upon the request of defendants Barretto and Garcia that plaintiff handled the preparation of
the project study which project study was presented to defendant Caram so the latter was convinced to invest in
the proposed airlines. The project study was revised for purposes of presentation to financiers and the banks. It
was on the basis of this study that defendant corporation was actually organized and rendered operational.
Defendants Garcia and Caram, and Barretto became members of the Board and/or officers of defendant
corporation. Thus, not only the defendant corporation but all the other defendants who were involved in the
preparatory stages of the incorporation, who caused the preparation and/or benefited from the project study and
the technical services of plaintiff must be liable. 4
It would appear from the above justification that the petitioners were not really involved in the initial steps that
finally led to the incorporation of the Filipinas Orient Airways. Elsewhere in the decision, Barretto was
described as "the moving spirit." The finding of the respondent court is that the project study was undertaken by
the private respondent at the request of Barretto and Garcia who, upon its completion, presented it to the
petitioners to induce them to invest in the proposed airline. The study could have been presented to other
prospective investors. At any rate, the airline was eventually organized on the basis of the project study with the
petitioners as major stockholders and, together with Barretto and Garcia, as principal officers.
The following portion of the decision in question is also worth considering:
... Since defendant Barretto was the moving spirit in the pre-organization work of defendant corporation based
on his experience and expertise, hence he was logically compensated in the amount of P200,000.00 shares of
stock not as industrial partner but more for his technical services that brought to fruition the defendant
corporation. By the same token, We find no reason why the plaintiff should not be similarly compensated not
only for having actively participated in the preparation of the project study for several months and its subsequent
revision but also in his having been involved in the pre-organization of the defendant corporation, in the
preparation of the franchise, in inviting the interest of the financiers and in the training and screening of
personnel. We agree that for these special services of the plaintiff the amount of P50,000.00 as compensation is
reasonable. 5
The above finding bolsters the conclusion that the petitioners were not involved in the initial stages of the
organization of the airline, which were being directed by Barretto as the main promoter. It was he who was
putting all the pieces together, so to speak. The petitioners were merely among the financiers whose interest was
to be invited and who were in fact persuaded, on the strength of the project study, to invest in the proposed
airline.
Significantly, there was no showing that the Filipinas Orient Airways was a fictitious corporation and did not
have a separate juridical personality, to justify making the petitioners, as principal stockholders thereof,
responsible for its obligations. As a bona fide corporation, the Filipinas Orient Airways should alone be liable
for its corporate acts as duly authorized by its officers and directors.
In the light of these circumstances, we hold that the petitioners cannot be held personally liable for the
compensation claimed by the private respondent for the services performed by him in the organization of the
corporation. To repeat, the petitioners did not contract such services. It was only the results of such services that
Barretto and Garcia presented to them and which persuaded them to invest in the proposed airline. The most that
can be said is that they benefited from such services, but that surely is no justification to hold them personally
liable therefor. Otherwise, all the other stockholders of the corporation, including those who came in later, and
regardless of the amount of their share holdings, would be equally and personally liable also with the petitioners
for the claims of the private respondent.
The petition is rather hazy and seems to be flawed by an ambiguous ambivalence. Our impression is that it is
opposed to the imposition of solidary responsibility upon the Carams but seems to be willing, in a vague,
unexpressed offer of compromise, to accept joint liability. While it is true that it does here and there disclaim
total liability, the thrust of the petition seems to be against the imposition of solidary liability only rather than
against any liability at all, which is what it should have categorically argued.
Categorically, the Court holds that the petitioners are not liable at all, jointly or jointly and severally, under the
first paragraph of the dispositive portion of the challenged decision. So holding, we find it unnecessary to
examine at this time the rules on solidary obligations, which the parties-needlessly, as it turns out have belabored
unto death.
WHEREFORE, the petition is granted. The petitioners are declared not liable under the challenged decision,
which is hereby modified accordingly. It is so ordered.
Trillana v. Quezon College
93 Phil 383
G.R. No. L-5003 June 27, 1953
NAZARIO TRILLANA, administrator-appellee,
vs.
QUEZON COLLEGE, INC., claimant-appellant.
Singson, Barnes, Yap and Blanco for appellant.
Delgado, Flores & Macapagal for appellee.
PARAS, J.:
Damasa Crisostomo sent the following letter to the Board of Trustees of the Quezon College:
June 1, 1948
The BOARD OF TRUSTEES
Quezon College
Manila
Gentlemen:
Please enter my subscription to dalawang daan (200) shares of your capital stock with a par value of P100 each.
Enclosed you will find (Babayaran kong lahat pagkatapos na ako ay makapag-pahuli ng isda) pesos as my initial
25
payment and the balance payable in accordance with law and the rules and regulations of the Quezon College. I
hereby agree to shoulder the expenses connected with said shares of stock. I further submit myself to all lawful
demands, decisions or directives of the Board of Trustees of the Quezon College and all its duly constituted
officers or authorities (ang nasa itaas ay binasa at ipinaliwanag sa akin sa wikang tagalog na aking nalalaman).
Very respectfully,
(Sgd.) DAMASA CRISOSTOMO
Signature of subscriber
Nilagdaan sa aming harapan:
JOSE CRISOSTOMO
EDUARDO CRISOSTOMO
Damasa Crisostomo died on October 26, 1948. As no payment appears to have been made on the subscription
mentioned in the foregoing letter, the Quezon College, Inc. presented a claim before the Court of First Instance
of Bulacan in her testate proceeding, for the collection of the sum of P20,000, representing the value of the
subscription to the capital stock of the Quezon College, Inc. This claim was opposed by the administrator of the
estate, and the Court of First Instance of Bulacan, after hearing issued an order dismissing the claim of the
Quezon College, Inc. on the ground that the subscription in question was neither registered in nor authorized by
the Securities and Exchange Commission. From this order the Quezon College, Inc. has appealed.
It is not necessary for us to discuss at length appellant's various assignments of error relating to the propriety of
the ground relief upon by the trial court, since, as pointed out in the brief for the administrator and appellee,
there are other decisive considerations which, though not touched by the lower court, amply sustained the
appealed order.
It appears that the application sent by Damasa Crisostomo to the Quezon College, Inc. was written on a general
form indicating that an applicant will enclose an amount as initial payment and will pay the balance in
accordance with law and the regulations of the College. On the other hand, in the letter actually sent by Damasa
Crisostomo, the latter (who requested that her subscription for 200 shares be entered) not only did not enclose
any initial payment but stated that "babayaran kong lahat pagkatapos na ako ay makapagpahuli ng isda." There is
nothing in the record to show that the Quezon College, Inc. accepted the term of payment suggested by Damasa
Crisostomo, or that if there was any acceptance the same came to her knowledge during her lifetime. As the
application of Damasa Crisostomo is obviously at variance with the terms evidenced in the form letter issued by
the Quezon College, Inc., there was absolute necessity on the part of the College to express its agreement to
Damasa's offer in order to bind the latter. Conversely, said acceptance was essential, because it would be unfair
to immediately obligate the Quezon College, Inc. under Damasa's promise to pay the price of the subscription
after she had caused fish to be caught. In other words, the relation between Damasa Crisostomo and the Quezon
College, Inc. had only thus reached the preliminary stage whereby the latter offered its stock for subscription on
the terms stated in the form letter, and Damasa applied for subscription fixing her own plan of payment, — a
relation, in the absence as in the present case of acceptance by the Quezon College, Inc. of the counter offer of
Damasa Crisostomo, that had not ripened into an enforceable contract.
Indeed, the need for express acceptance on the part of the Quezon College, Inc. becomes the more imperative, in
view of the proposal of Damasa Crisostomo to pay the value of the subscription after she has harvested fish, a
condition obviously dependent upon her sole will and, therefore, facultative in nature, rendering the obligation
void, under article 1115 of the old Civil Code which provides as follows: "If the fulfillment of the condition
should depend upon the exclusive will of the debtor, the conditional obligation shall be void. If it should depend
upon chance, or upon the will of a third person, the obligation shall produce all its effects in accordance with the
provisions of this code." It cannot be argued that the condition solely is void, because it would have served to
create the obligation to pay, unlike a case, exemplified by Osmeña vs. Rama (14 Phil., 99), wherein only the
potestative condition was held void because it referred merely to the fulfillment of an already existing
indebtedness.
In the case of Taylor vs. Uy Tieng Piao, et al. (43 Phil., 873, 879), this Court already held that "a condition,
facultative as to the debtor, is obnoxious to the first sentence contained in article 1115 and renders the whole
obligation void."
Wherefore, the appealed order is affirmed, and it is so ordered with costs against appellant.
Bayla v. Sialng Traffic, Co
73 Phil 557
G.R. Nos. L-48195 and 48196 May 1, 1942
SOFRONIO T. BAYLA, ET AL., petitioners,
vs.
SILANG TRAFFIC CO., INC., respondent.
SILANG TRAFFIC CO., petitioner, vs. SOFRONIO BAYLA, ET AL., respondents.
E. A. Beltran for petitioners.
Conrado V. Sanchez, Melchor C. Benitez, and Enrique M. Fernando for respondent.
OZAETA, J.:
Petitioners in G.R. No. 48195 instituted this action in the Court of First Instance of Cavite against the respondent
Silang Traffic Co., Inc. (cross-petitioner in G.R. No. 48196), to recover certain sums of money which they had
paid severally to the corporation on account of shares of stock they individually agreed to take and pay for under
certain specified terms and conditions, of which the following referring to the petitioner Josefa Naval, is typical:
AGREEMENT FOR INSTALLMENT SALE OF SHARES IN THE "SILANG TRAFFIC COMPANY, INC.,"
Silang, Cavite, P. I.
THIS AGREEMENT, made and entered into between Mrs. Josefa Naval, of legal age, married and resident of
the Municipality of Silang, Province of Cavite, Philippine Islands, party of the First Part, hereinafter called the
subscriber, and the "Silang Traffic Company, Inc.," a corporation duly organized and existing by virtue of and
under the laws of the Philippine Islands, with its principal office in the Municipality of Silang, Province of
Cavite, Philippine Islands, party of the Second Part, hereinafter called the seller,
WITNESSETH:
26
That the subscriber promises to pay personally or by his duly authorized agent to the seller at the Municipality of
Silang, Province of Cavite, Philippine Islands, the sum of one thousand five hundred pesos (P1,500), Philippine
currency, as purchase price of FIFTEEN (15) shares of capital stock, said purchase price to be paid as follows, to
wit: five (5%) per cent upon the execution of the contract, the receipt whereof is hereby acknowledged and
confessed, and the remainder in installments of five per cent, payable within the first month of each and every
quarter thereafter, commencing on the 1st day of July, 1935, with interest on deferred payments at the rate of
SIX (6%) per cent per annum until paid.
Petitioners' action for the recovery of the sums above mentioned is based on a resolution by the board of
directors of the respondent corporation on August 1, 1937, of the following tenor:
A mocion sel Sr. Marcos Caparas y secundado por el Sr. Alejandro Bayla, que para el bien de la corporacion y la
pronta terminacion del asunto civil No. 3125 titulado "Vicente F. Villanueva et al. vs. Lino Gomez et al.," en el
Juzgado de Primera Instancia de Cavite, donde se gasto y se gastara no poca cantidad de la Corporacion, se
resolvio y se aprobo por la Junta Directiva los siguientes:

That the said subscriber further agrees that if he fails to pay any of said installment when due, or to perform any (a) Que se dejara sin efecto lo aprobado por la Junta Directiva el 3 de marzo, 1935, art. 11, sec. 162, sobre las
of the aforesaid conditions, or if said shares shall be attached or levied upon by creditors of the said subscriber, cobranzas que se haran por el Secretario Tesorero de la Corporacion a los accionistas que habian tomado o
then the said shares are to revert to the seller and the payments already made are to be forfeited in favor of said suscrito nuevas acciones y que se permitia a estos pagar 20% del valor de las acciones suscritas en un año, con
seller, and the latter may then take possession, without resorting to court proceedings. interes de 6% y el pago o jornal que se hara por trimestre.

The said seller upon receiving full payment, at the time and manner hereinbefore specified, agrees to execute and (b) Se dejara sin efecto, en vista de que aun no esta pagado todo el valor de las 123 acciones, tomadas de las
deliver to said subscriber, or to his heirs and assigns, the certificate of title of said shares, free and clear of all acciones no expedidas (unissued stock) de la Corporacion y que fueron suscritas por los siguienes:
encumbrances.
Lino Gomez..................... 10 Acciones
In testimony whereof, the parties have hereunto set their hands in the Municipality of Silang, Province of Cavite,
Philippine Islands, this 30th day of March, 1935.
Venancio Toledo............. 8 Acciones
(Sgd.) JOSEFA NAVAL
Melchor P. Benitez........ 17 Acciones
SILANG TRAFFIC COMPANY, INC.
Isaias Videña................. 14 Acciones
Subscriber
Esteban Velasco............ 10 Acciones
By (Sgd.) LINO GOMEZ
Numeriano S. Aldaba.... 15 Acciones
President.
Inocencio Cruz................. 8 Acciones
(Exhibit 1. Notarial acknowledgment omitted.)
Josefa Naval .................. 15 Acciones
The agreements signed by the other petitioners were of the same date (March 30, 1935) and in identical terms as
the foregoing except as to the number of shares and the corresponding purchase price. The petitioners agreed to Sofronio Bayla................. 8 Acciones
purchase the following number of shares and, up to April 30, 1937, had paid the following sums on account
thereof: Dionisio Dungca............. 3 Acciones

Sofronio T. Bayla....... 8 shares P360 y devolver a las personas arriba descritas toda la cantidad que estas habian pagado por las 123 acciones.

Venancio Toledo........
Josefa Naval..............
Paz Toledo................
8 shares 375 (c) Que se dejara sin efecto lo aprobado por la Junta Directiva el 3 marzo, 1935, art. V. sec. 165, sobre el cambio
o trueque de las 31 acciones del Treasury Stock, contra las 32 acciones del Sr. Numeriano Aldaba, en la
15 shares 675 corporacion Northern Luzon Transportation Co. y que se devuelva al Sr. Numeriano Aldaba las 32 acciones
mencionadas despues que el haya devuelto el certificado de las 31 acciones de la Silang Traffic Co., Inc.
15 shares 675

27
(d) Permitir al Tesorero de la Corporacion para que devuelva a las personas arriba indicadas, las cantidades
pagadas por las 123 acciones. (Exhibit A-1.)
The respondent corporation set up the following defenses: (1) That the above-quoted resolution is not applicable
to the petitioners Sofronio T. Bayla, Josefa Naval, and Paz Toledo because on the date thereof "their subscribed
shares of stock had already automatically reverted to the defendant, and the installments paid by them had
already been forfeited"; and (2) that said resolution of August 1, 1937, was revoked and cancelled by a
subsequent resolution of the board of directors of the defendant corporation dated August 22, 1937.
The trial court absolved the defendant from the complaint and declared canceled (forfeited) in favor of the
defendant the shares of stock in question. It held that the resolution of August 1, 1937, was null and void,
citingVelasco vs. Poizat (37 Phil., 802), wherein this Court held that "a corporation has no legal capacity to
release an original subscriber to its capital stock from the obligation to pay for shares; and any agreement to this
effect is invalid" Plaintiffs below appealed to the Court of Appeals, which modified of the trial court as follows:
That part of the judgment dismissing plaintiff's complaint is affirmed, but that part thereof declaring their
subscription canceled is reversed. Defendant is directed to grant plaintiffs 30 days after final judgment within
which to pay the arrears on their subscription. Without pronouncement as to costs.
Both parties appealed to this Court by petition and cross-petition for certiorari. Petitioners insist that they have
the right to recover the amounts involved under the resolution of August 1, 1937, while the respondent and
cross-petitioner on its part contends that said amounts have been automatically forfeited and the shares of stock
have reverted to the corporation under the agreement hereinabove quoted.
The parties litigant, the trial court, and the Court of Appeals have interpreted or considered the said agreement as
a contract of subscription to the capital stock of the respondent corporation. It should be noted, however, that
said agreement is entitled "Agreement for Installment Sale of Shares in the Silang Traffic Company, Inc.,"; that
while the purchaser is designated as "subscriber," the corporation is described as "seller"; that the agreement was
entered into on March 30, 1935, long after the incorporation and organization of the corporation, which took
place in 1927; and that the price of the stock was payable in quarterly installments spread over a period of five
years. It also appears that in civil case No. 3125 of the Court of First Instance of Cavite mentioned in the
resolution of August 1, 1937, the right of the corporation to sell the shares of stock to the person named in said
resolution (including herein petitioners) was impugned by the plaintiffs in said case, who claimed a preferred
right to buy said shares.
Whether a particular contract is a subscription or a sale of stock is a matter of construction and depends upon its
terms and the intention of the parties (4 Fletcher, Cyclopedia of Corporation [permanent edition], 29, cited in
Salmon, Dexter & Co. vs. Unson (47 Phil. 649, 652). In the Unson case just cited, this Court held that a
subscription to stock in an existing corporation is, as between the subscriber and the corporation, simply a
contract of purchase and sale.
It seems clear from the terms of the contracts in question that they are contracts of sale and not of subscription.
The lower courts erred in overlooking the distinction between subscription and purchase "A subscription,
properly speaking, is the mutual agreement of the subscribers to take and pay for the stock of a corporation,
while a purchase is an independent agreement between the individual and the corporation to buy shares of stock
from it at stipulated price." (18 C. J. S., 760.) In some particulars the rules governing subscriptions and sales of
shares are different. For instance, the provisions of our Corporation Law regarding calls for unpaid subscription
and assessment of stock (sections 37-50) do not apply to a purchase of stock. Likewise the rule that corporation
has no legal capacity to release an original subscriber to its capital stock from the obligation to pay for his
shares, is inapplicable to a contract of purchase of shares.
The next question to determine is whether under the contract between the parties the failure of the purchaser to
pay any of the quarterly installments on the purchase price automatically gave rise to the forfeiture of the
amounts already paid and the reversion of the shares to the corporation. The contract provides for interest of the
rate of six per centum per annum on deferred payments. It is also provides that if the purchaser fails to pay any
of said installments when due, the said shares are to revert to the seller and the payments already made are to be
forfeited in favor of said seller. The respondent corporation contends that when the petitioners failed to pay the
installment which fell due on or before July 31, 1937, forfeiture automatically took place, that is to say, without
the necessity of any demand from the corporation, and that therefore the resolution of August 1, 1937,
authorizing the refund of the installments already paid was inapplicable to the petitioners, who had already lost
any and all rights under said contract. The contention is, we think, untenable. The provision regarding interest on
deferred payments would not have been inserted if it had been the intention of the parties to provide for
automatic forfeiture and cancelation of the contract. Moreover, the contract did not expressly provide that the
failure of the purchaser to pay any installment would give rise to forfeiture and cancelation without the necessity
of any demand from the seller; and under article 1100 of the Civil Code persons obliged to deliver or do
something are not in default until the moment the creditor demands of them judicially or extrajudicially the
fulfillment of their obligation, unless (1) the obligation or the law expressly provides that demand shall not be
necessary in order that default may arise, (2) by reason of the nature and circumstances of the obligation it shall
appear that the designation of the time at which that thing was to be delivered or the service rendered was the
principal inducement to the creation of the obligation.
Is the resolution of August 1, 1937, valid? The contract in question being one of purchase and not subscription as
we have heretofore pointed out, we see no legal impediment to its rescission by agreement of the parties.
According to the resolution of August 1, 1937, the recission was made for the good of the corporation and in
order to terminate the then pending civil case involving the validity of the sale of the shares in question among
others. To that rescission the herein petitioners apparently agreed, as shown by their demand for the refund of
the amounts they had paid as provided in said resolution. It appears from the record that said civil case was
subsequently dismissed, and that the purchasers of shares of stock, other than the herein petitioners, who were
mentioned in said resolution were able to benefit by said resolution. It would be an unjust discrimination to deny
the same benefit to the herein petitioners.
We may add that there is no intimation in this case that the corporation was insolvent, or that the right of any
creditor of the same was in any way prejudiced by the rescission.
The attempted revocation of said rescission by the resolution of August 22, 1937, was invalid, it not having been
agreed to by the petitioners.
Wherefore, the judgment of the court of appeals is hereby reversed and another judgment will be entered against
the defendant Silang Traffic Co., Inc., ordering it to pay to the plaintiffs Sofronio T. Bayla, Venancio Toledo,
Josefa Naval, and Paz Toledo, the sums of P360, P375, P675, and P675, respectively, with legal interest on each
of said sums from May 28, 1938, the date of the filing of the complaint, until the date of payment, and with costs
in the three instances. So ordered.
Velasco v. Poizat
28
 37 Phil 802
[G.R. No. L-11528. March 15, 1918. ]
MIGUEL VELASCO, assignee of The Philippine Chemical Product Co. (Ltd.) , Plaintiff-Appellant, v.
JEAN M. POIZAT, Defendant-Appellee.
Vicente Rodriguez for Appellant.
A.J. Burke for Appellee.
SYLLABUS
1. CORPORATIONS; SUBSCRIPTION TO CAPITAL STOCK. — A stock subscription is a contract between
the corporation and the subscriber, and courts will enforce it for or against either. No express promise to pay is
necessary to make the subscriber liable.
2. ID.; ID.; REMEDIES FOR ENFORCEMENT OF SUBSCRIPTION FOR STOCK. — The corporation has
two remedies against the subscriber to the corporate shares, namely (1) to sell the stock for the account of the
delinquent subscriber, and (2) to bring a legal action against him for the amount due.
3. ID.; ID.; ACTION TO RECOVER STOCK SUBSCRIPTION. — The provisions of section 38 to 48,
inclusive, of the Corporation Law are applicable only where the directors of a corporation intend to subject the
stock of the delinquent subscriber to sale in order to enforce payment of the subscription. They have no
application in case a legal action is brought to recover upon the stock subscription.
4. ID.; ID.; ID.; INSOLVENCY OF CORPORATION. — When insolvency supervenes upon a corporation and
the court assumes jurisdiction demand, and are at once recoverable in an action instituted by the assignee in
insolvency.
5. ID.; ID.; RELEASE OF SUBSCRIBER. — A corporation has no legal capacity to release a subscriber to its
capital stock from the obligation to pay for his shares; and any agreement to this effect is invalid.
DECISION
STREET, J. :
From the amended complaint filed in this cause upon February 5, 1915, it appears that the plaintiff, as assignee
in insolvency of "The Philippine Chemical Product Company" (Ltd.) is seeking to recover of the defendant, Jean
M. Poizat, the sum of P1,500, upon a subscription made by him to the corporate stock of said company. It
appears that the corporation in question was originally organized by several residents of the city of Manila,
where the company had its principal place of business, with a capital of P50,000, divided into 500 shares. The
defendant subscriber for 20 shares of the stock of the company, and paid in upon his subscription the sum of
P500, the par value of 5 shares. The action was brought to recover the amount subscribed upon the remaining
shares.
It appears that the defendant was a stockholder in the company from the inception of the enterprise, and for
sometime acted as its treasurer and manager. While serving in this capacity he called in and collected all
subscriptions to the capital stock of the company, except the aforesaid 15 shares subscribed by himself and
another 15 shares owned by Jose R. Infante.
Upon July 13, 1914, a meeting of the board of directors of the company was held at which a majority of the
stock was represented. Upon this occasion two resolutions, important to be here noted, were adopted. The first
was a proposal that the directors, or shareholders, of the company should make good by new subscription, in
proportion to their respective holdings, 15 shares which had been surrendered in Infante. It seems that this
shareholder had already paid 25 per cent of his subscription upon 20 shares, leaving 15 shares unpaid for, and an
understanding had been reached by him and the management by which he was to be released from the obligation
of his subscription, it being understood that what he had already paid should not be refunded. Accordingly the
directors present at this meeting subscribed P1,200 toward taking up his shares, leaving a deficiency of P300 to
be recovered by voluntary subscription from stockholders not present at the meeting.
The other proposition was to the effect that Juan [Jean] M. Poizat, who was absent, should be required to pay the
amount of his subscription upon the 15 shares for which he was still indebted to the company. The resolution
further provided that, in case he should refuse to make such payment, the management of the corporation should
be authorized to undertake judicial proceedings against him. When notification of this resolution reached Poizat
through the mail it evoked from him a manifestation of surprise and pain, which found expression in a letter
written by him a reply, dated July 27, 1914, and addressed to Velasco, as treasurer and administrator. In this
letter Poizat states that he had been given to understand by some member of the board of directors that he was to
be relieved from his subscription upon the terms conceded to Infante; and he added:
"My desire to be relieved from the payment of the remaining 75 per cent arises from the poor opinion which I
entertain of the business and the faint hope of ever recovering any money invested. In consequence, I prefer to
lose the whole of the 25 per cent I have already paid rather than to continue investing more money in what I
consider to be a ruinous proposition."c
Within a short while the unfavorable opinion entertained by Poizat as to the prospect of the company was found
to be fully justified, as the company soon went into voluntary insolvency, Velasco being named as the assignee.
He qualified at once by giving bond, and was duly inducted into the office of assignee upon November 25, by
virtue of a formal transfer executed by the clerk in pursuance of section 32 of Act No. 1956.
The answer of the defendant consisted of a general denial and a so-called special defense, consisting of a
concatenation of statements more appropriate for a demurrer than as material for a special defense. The principal
contention is that the call made by the board of directors of the company on July 13, 1914, was not made
pursuant to the requirements of sections 37 and 38 of the Corporation Law (Act No. 1459), and in particular that
the action was instituted before the expiration of the 30 days specified in section 38.
At the hearing of the Court of First Instance, judgment was rendered in favor of the defendant, and the complaint
was dismissed. From this action the plaintiff has appealed.
We think that Poizat is liable upon this subscription. A stock subscription is a contract between the corporation
on one side, and the subscriber on the other, and courts will enforce it for or against either. It is a rule, accepted
by the Supreme Court of the United States, that a subscription for shares of stock does not require an express
promise to pay the amount subscribed, as the law implies a promise to pay on the part of the subscriber. (7
Ruling Case Law, sec. 191.) Section 36 of the Corporation Law clearly recognizes that a stock subscription is a
subsisting liability from the time the subscription is made, since it requires the subscriber to pay interest
29
quarterly from that date unless he is relieved from such liability by the by-laws of the corporation. The
subscriber is a much bound to pay the amount of the share subscriber by him as he would be to pay any other
debt, and the right of the company to demand payment is no less incontestable.
The provisions of the Corporation Law (Act No. 1459) give recognition to two remedies for the enforcement of
stock subscriptions. The first and most special remedy given by the statute consists in permitting the corporation
to put up the unpaid stock for sale and dispose of it for the account of the delinquent subscriber. In this case the
provisions of sections 38 to 48, inclusive, of the Corporation Law are applicable and must be followed. The
other remedy is by action in court, concerning which we find in section 49 the following
provision:jgc:chanrobles.com.ph
"Nothing in this Act shall prevent the directors from collecting, by action in any court of proper jurisdiction, the
amount due on any unpaid subscription, together with accrued interest and costs and expenses incurred."cralaw
virtua1aw library
It is generally accepted doctrine that the statutory right to sell the subscriber’s stock is merely a remedy in
addition to that which proceeds by action in court; and it has been held that the ordinary legal remedy by action
exists even though no express mention thereof is made in the statute. (Instone v. Frankfort Bridge Co., 2 Bibb
[Ky. ], 576; 5 Am. Dec., 638.)
No attempt is made in the Corporation Law to define the precise conditions under which an action may be
maintained upon a stock subscription, as such conditions should be determined with reference to the rules
governing contract liability in general; and where it appears as in this case that a matured stock subscription is
unpaid, none of the provisions contained in sections 38 to 48, inclusive, of Act No. 1459 can be permitted to
obstruct or impede the action to recover thereon. By virtue of the first subsection of section 36 of the Insolvency
Law (Act No. 1956) the assignee of the insolvent corporation succeeds to all the corporate rights of action vested
in the corporation prior to its insolvency; and the assignee therefore has the same freedom with respect to suing
upon a stock subscription as the directors themselves would have had under section 49 above cited.
But there is another reason why the present plaintiff must prevail in this case, even supposing that the failure of
the directors to comply with the requirements of the provisions of sections 38 to 48 , inclusive, of Act No. 1459
might have been an obstacle to a recovery by the corporation itself. That reason is this: When insolvency
supervenes upon a corporation and the court assumes jurisdiction to wind it up, all unpaid stock subscriptions
become payable on demand, and are at once recoverable in an action instituted by the assignee or receiver
appointed by the court. This rule apparently had its origin in a recognition of the principle that a court of equity,
having jurisdiction of the insolvency proceedings, could, if necessary, make the cale itself, in its capacity as
successor to the powers exercised by the board of directors of the defunct company. Later a further rule gained
recognition to the effect that the receiver or assignee, in an action instituted by proper authority, could himself
proceed to collect the subscription without the necessity of any prior call whether. This conclusion is well
supported by reference to the following authorities:jgc:chanrobles.com.ph
". . . a court of equity may enforce payment of stock subscriptions, although there have been no calls for them by
the company." (Hatch v. Dana, 101 U.S., 205.)
"It is again insisted that plaintiffs cannot recover because the suit was not preceded by a call or assessment
against the defendant as a subscriber, and that until this is done no right of action accrues. In a suit by a solvent
going corporation to collect a subscription, and in certain suits provided by statute this would be true; but it is
now quite well settled that when the corporation becomes insolvent, with proceedings instituted by creditors to
wind up and distribute its assets, no call or assessment is necessary before the institution of suits to collect
unpaid balances on subscription." (Ross-Meehan Shoe F. Co. v. Southern Malleable Iron Co., 72 Fed., 957, 960;
see also Henry v. Vermillion etc. R. R. Co., 17 Ohio, 187, and Thompson on Corporations, 2d ed., vol. 3, sec.
2697.)
It evidently cannot be permitted that a subscriber should escape from his lawful obligation by reason of the
failure of the officers of the corporation to perform their duty in making a call; and when the original mode of
making the call becomes impracticable, the obligation must be treated as due upon demand. If the corporation
were still an active entity, and this action should be dismissed for irregularity in the making of the call, other
steps could be taken by the board to cure the defect and another action taken by the board to cure the defect and
another action could be brought; but where the company is being wound up, no such procedure would be
practicable. The better doctrine is that when insolvency supervenes all unpaid subscription become at once due
and enforceable.
The printed bill of exceptions in this cause does not contain the original complaint, nor does it state who was
plaintiff therein or the date when the action was instituted. It may, however, be gathered from the papers
transmitted to this court that the action was originally instituted in the name of the Philippine Chemical Product
Co. (Ltd.) , prior to its insolvency, and that later the assignee was substituted as plaintiff and then filed the
amended complaint, with the permission of the court. Now, if we concede that no right of action existed when
the original complaint was filed, a right of action certainly existed when the assignee filed his amended
complaint; and as the bill of exceptions fails to show that any exception was taken to the action of the court in
allowing the amended complaint to be filled, no objection would be here entertained on the ground that the
action was prematurely brought.
The circumstance that the board of directors in their meeting of July 13, 1914, resolved to release Infante from
his obligation upon a subscription for 15 shares is in no wise prejudicial to the right of the corporation or its
assignee to recover from Poizat upon a subscription made by him. In releasing Infante the board transcended its
powers, and he no doubt still remained liable on such of his shares as were not taken up and paid for by other
persons.
"The general doctrine is that the corporation has no legal capacity to release an original subscriber to its capital
stock from the obligation of paying for his shares, in whole or in part, . . ." (10 Cyc., 450.)
The suggestion contained in Poizat’s letter of July 27, 1914, to the effect that he understood that he was to be
relieved upon the same terms as Infante is, for the same reason, of no merit as matter of defense, even if an
agreement to that effect had been duly proved.
From what has been said it is manifest that the defendant is liable for P1,500, the amount of his subscription
upon the unpaid shares. Under section 36 of the Corporation Law he is also liable for interest at the lawful rate
from the date of his subscription, unless relieved from this liability by the by-laws of the company. These by-
laws showing the exact date upon which the subscription was made, though it is alleged in the original complaint
that the company was organized upon march 23, 1914. This allegation is not admitted in the agreed statement of
facts. The defendant, however, inferentially admits in his letter of July 27, 1914, that this subscription had been
made prior to July 13, 1914. It results that in our opinion he should be held liable for interest from that date.
30

The judgment of the lower court is therefore reversed, and judgment will be rendered in favor of the plaintiff and
against the defendant for the sum of one thousand five hundred pesos (P1,500), with interest from July 13, 1914,
and costs of both instances. So ordered.
PNB v. Bitulok Sawmill, Inc.
23 SCRA 1366
G.R. Nos. L-24177-85 June 29, 1968
PHILIPPINE NATIONAL BANK, plaintiff-appellee,
vs.
BITULOK SAWMILL, INC., DINGALAN LUMBER CO., INC., SIERRA MADRE LUMBER CO.,
INC., NASIPIT LUMBER CO., INC., WOODWORKS, INC., GONZALO PUYAT, TOMAS B.
MORATO, FINDLAY MILLAR LUMBER CO., INC., ET AL., INSULAR LUMBER CO., ANAKAN
LUMBER CO., AND CANTILAN LUMBER CO., INC., defendants-appellees.
FERNANDO, J.:
In the face of a statutory norm, which, as interpreted in a uniform line of decisions by this Court, speaks
unequivocally and is free from doubt, the lower court with full recognition that the case for the plaintiff creditor,
Philippine National Bank, "is meritorious strictly from the legal standpoint" 1 but apparently unable to "close its
eyes to the equity of the case" 2 dismissed nine (9) cases filed by it, seeking "to recover from the defendant
lumber producers [Bitulok Sawmill, Inc.; Dingalan Lumber Co., Inc., Sierra Madre Lumber Co., Inc.; Nasipit
Lumber Co., Inc.; Woodworks, Inc.; Gonzalo Puyat; Tomas B. Morato; Findlay Millar Lumber Co., Inc.; Insular
Lumber Co., Inc.; Anakan Lumber Co., Inc.; and Cantilan Lumber Co., Inc.] the balance of their stock
subscriptions to the Philippine Lumber Distributing Agency, Inc." 3 In essence then, the crucial question posed
by this appeal from such a decision of the lower court is adherence to the rule of law. Otherwise stated, would
non-compliance with a plain statutory command, considering the persuasiveness of the plea that defendants-
appellees would "not have subscribed to [the] capital stock" of the Philippine Lumber Distributing Agency "were
it not for the assurance of the [then] President of the Republic of the Philippines that the Government would
back [it] up by investing P9.00 for every peso" 4 subscribed, a condition which was not fulfilled, such
commitment not having been complied with, be justified? The answer must be in the negative.
It cannot be otherwise even if an element of unfairness and injustice could be predicated, as the lower court, in a
rather sympathetic mood, did find in the plaintiff bank, as creditor, compelling defendant lumber producers
under the above circumstances to pay the balance of their subscriptions. For a plain and statutory command, if
applicable, must be respected. The rule of law cannot be satisfied with anything less. The appeal must be
sustained.
In these various suits decided jointly, the Philippine National Bank, as creditor, and therefore the real party in
interest, was allowed by the lower court to substitute the receiver of the Philippine Lumber Distributing Agency
in these respective actions for the recovery from defendant lumber producers the balance of their stock
subscriptions. The amount sought to be collected from defendants-appellees Bitulok Sawmill, Inc., Dingalan
Lumber Co., Inc., and Sierra Madre Lumber Co., Inc., is P5,000.00, defendants-appellees having made a partial
payment of P15,000.00 of their total subscription worth P20,000.00; from defendant-appellee Nasipit Lumber
Co., Inc., the sum of P10,000.00, defendant-appellee having made a partial payment of P10,000.00 of its total
subscription worth P20,000.00; from defendant-appellee Woodworks, Inc., the sum of P10,886.00, defendant-
appellee having made a partial payment of P9,114.00 of its total subscription worth P20,000.00; from defendant-
appellee Gonzalo Puyat the sum of P10,000.00, defendant-appellee having made a partial payment of
P10,000.00 of his total subscription worth P20,000.00; from defendant-appellee Tomas Morato the sum of
P10,000.00, defendant-appellee having made a partial payment of P10,000.00 of his total subscription worth
P20,000.00; from defendant-appellee Findlay Millar Lumber Co., Inc., the sum of P10,000.00, defendant-
appellee having made a partial payment of P10,000.00 of its total subscription worth P20,000.00; from
defendant-appellee Insular Lumber Co., Inc., the sum of P5,000.00, defendant-appellee having made a partial
payment of P15,000.00 of its total subscription worth P20,000.00; from defendant-appellee Anakan Lumber Co.,
Inc., the sum of P15,000.00, defendant-appellee having made a partial payment of P5,000.00 of its total
subscription worth P20,000.00; and from defendant-appellee Cantilan Lumber Co., Inc., the sum of P7,500.00,
defendant-appellee having made a partial payment of P2,500.00 of its total subscription worth P10,000.00, plus
interest at the legal rate from the filing of the suits and the costs of the suits in all the nine (9) cases.
The Philippine Lumber Distributing Agency, Inc., according to the lower court, "was organized sometime in the
early part of 1947 upon the initiative and insistence of the late President Manuel Roxas of the Republic of the
Philippines who for the purpose, had called several conferences between him and the subscribers and organizers
of the Philippine Lumber Distributing Agency, Inc." 5 The purpose was praiseworthy, to insure a steady supply
of lumber, which could be sold at reasonable prices to enable the war sufferers to rehabilitate their devastated
homes. The decision continues: "He convinced the lumber producers to form a lumber cooperative and to pool
their sources together in order to wrest, particularly, the retail trade from aliens who were acting as middlemen
in the distribution of lumber. At the beginning, the lumber producers were reluctant to organize the cooperative
agency as they believed that it would not be easy to eliminate from the retail trade the alien middlemen who had
been in this business from time immemorial, but because the late President Roxas made it clear that such a
cooperative agency would not be successful without a substantial working capital which the lumber producers
could not entirely shoulder, and as an inducement he promised and agreed to finance the agency by making the
Government invest P9.00 by way of counterpart for every peso that the members would invest therein,...." 6
This was the assurance relied upon according to the decision, which stated that the amount thus contributed by
such lumber producers was not enough for the operation of its business especially having in mind the primary
purpose of putting an end to alien domination in the retail trade of lumber products. Nor was there any
appropriation by the legislature of the counterpart fund to be put up by the Government, namely, P9.00 for every
peso invested by defendant lumber producers. Accordingly, "the late President Roxas instructed the Hon. Emilio
Abello, then Executive Secretary and Chairman of the Board of Directors of the Philippine National Bank, for
the latter to grant said agency an overdraft in the original sum of P250,000.00 which was later increased to
P350,000.00, which was approved by said Board of Directors of the Philippine National Bank on July 28, 1947,
payable on or before April 30, 1958, with interest at the rate of 6% per annum, and secured by the chattel
mortgages on the stock of lumber of said agency." 7 The Philippine Government did not invest the P9.00 for
every peso coming from defendant lumber producers. The loan extended to the Philippine Lumber Distributing
Agency by the Philippine National Bank was not paid. Hence, these suits.
For the lower court, the above facts sufficed for their dismissal. To its mind "it is grossly unfair and unjust for
the plaintiff bank now to compel the lumber producers to pay the balance of their subscriptions .... Indeed, when
the late President Roxas made representations to the plaintiff bank, thru the Hon. Emilio Abello, who was then
the Executive Secretary and Chairman of its Board of Directors, to grant said overdraft to the agency, it was the
only way by which President Roxas could make good his commitment that the Government would invest in said
agency to the extent already mentioned because, according to said late President Roxas, the legislature had not
appropriated any amount for such counterpart. Consequently, viewing from all considerations of equity in the
case, the Court finds that plaintiff bank should not collect any more from the defendants the balance of their
subscriptions to the capital stock of the Philippine Lumber Distributing Agency, Inc." 8
31
Even with the case for defendant lumber producers being put forth in its strongest possible light in the appealed
decision, the plaintiff creditor, the Philippine National Bank, should have been the prevailing party. On the law
as it stands, the judgment reached by the lower court cannot be sustained. The appeal, as earlier made clear,
possesses merit.
In Philippine Trust Co. v. Rivera, 9 citing the leading case of Velasco v. Poizat, 10 this Court held: "It is
established doctrine that subscriptions to the capital of a corporation constitute a fund to which creditors have a
right to look for satisfaction of their claims and that the assignee in insolvency can maintain an action upon any
unpaid stock subscription in order to realize assets for the payment of its debt.... A corporation has no power to
release an original subscriber to its capital stock from the obligation of paying for his shares, without a valuable
consideration for such release; and as against creditors a reduction of the capital stock can take place only in the
manner and under the conditions prescribed by the statute or the charter or the articles of incorporation.
Moreover, strict compliance with the statutory regulations is necessary...." The Poizat doctrine found acceptance
in later cases. 11One of the latest cases, Lingayen Gulf Electric Power v. Baltazar, 12 Speaks to this effect: "In
the case of Velasco v. Poizat, 13 the corporation involved was insolvent, in which case all unpaid stock
subscriptions become payable on demand and are immediately recoverable in an action instituted by the
assignee."
It would be unwarranted to ascribe to the late President Roxas the view that the payment of the stock
subscriptions, as thus required by law, could be condoned in the event that the counterpart fund to be invested by
the Government would not be available. Even if such were the case, however, and such a promise were in fact
made, to further the laudable purpose to which the proposed corporation would be devoted and the possibility
that the lumber producers would lose money in the process, still the plain and specific wording of the applicable
legal provision as interpreted by this Court must be controlling. It is a well-settled principle that with all the vast
powers lodged in the Executive, he is still devoid of the prerogative of suspending the operation of any statute or
any of its terms.
The emphatic and categorical language of an American decision cited by the late Justice Laurel, in People v.
Vera, 14 comes to mind: "By the twentieth article of the declaration of rights in the constitution of this
commonwealth, it is declared that the power of suspending the laws, or the execution of the laws, ought never to
be exercised but by the legislature, or by authority derived from it, to be exercised in such particular cases only
as the legislature shall expressly provide for...." Nor could it be otherwise considering that the Constitution
specifically enjoins the President to see to it that all laws be faithfully executed. 15 There may be a discretion as
to what a particular legal provision requires; there can be none whatsoever as to the enforcement and application
thereof once its meaning has been ascertained. What it decrees must be followed; what it commands must be
obeyed. It must be respected, the wishes of the President, to the contrary notwithstanding, even if impelled by
the most worthy of motives and the most persuasive equitable considerations. To repeat, such is not the case
here. For at no time did President Roxas ever give defendant lumber producers to understand that the failure of
the Government for any reason to put up the counterpart fund could terminate their statutory liability.
Such is not the law. Unfortunately, the lower court was of a different mind. That is not to pay homage to the rule
of law. Its decision then, one it is to be repeated influenced by what it considered to be the "equity of the case",
is not legally impeccable.
WHEREFORE, the decision of the lower court is reversed and the cases remanded to the lower court for
judgment according to law, with full consideration of the legal defenses raised by defendants-appellees, Bitulok
Sawmill, Inc.; Dingalan Lumber Co., Inc.; Sierra Madre Lumber Co., Inc.; Nasipit Lumber Co., Inc.;
Woodworks, Inc.; Gonzalo Puyat; Tomas B. Morato; Findlay Millar Lumber Co., Inc.; Anakan Lumber Co.,
Inc.; and Cantilan Lumber Co., Inc. No pronouncement as to costs.
Governement of the PI v. Manila Railroad
103 Phil 510
G.R. No. L-30646 January 30, 1929
THE GOVERNMENT OF THE PHILIPPINE ISLANDS, petitioner,
vs.
THE MANILA RAILROAD COMPANY and JOSE PAEZ as Manager of said Company, respondents.
Attorney-General Jaranilla for petitioner.
Jose Abreu for respondents.
JOHNSON, J.:
This is a petition in the Supreme Court of the extraordinary legal writ of mandamus presented by the
Government of the Philippine Islands, praying that the writ be issued to compel the Manila Railroad Company
and Jose Paez, as its manager, to provide and equip the telegraph poles of said company between the
municipality of Paniqui, Province of Tarlac, and the Municipality of San Fernando, Province of La Union, with
crosspieces for six telegraph wires belonging to the Government, which, it is alleged, are necessary for public
service between said municipalities.
The only question raised by the petition is whether the dependant company is required to provide and equip its
telegraph poles with crosspieces to carry six telegraph wires of the Government, or whether it is only required to
furnish poles with crosspieces sufficient to carry four wires only.
It is admitted that the present poles and crosspieces between said municipalities are sufficient to carry four
telegraph wires and that they do now carry four telegraph wires, by virtue of an agreement between the
respondents and the Bureau of the Posts of the Philippine Government. It is admitted that the poles and not
sufficient to carry six telegraph wires.
The petitioner relies upon the provisions of section 84 of act No. 1459. Act No. 1459 is the General Corporation
Law and was adopted by the United States Philippine Commission on March 1, 1906. (Vol. 5, Pub. Laws, pp.
224-268.) Section 84 of the said Act provides:
The railroad corporation shall establish along the whole length of the road a telegraph line for the use
of the railroad. The posts of this line may be used for Government wires and shall be of sufficient
length and strength and equipped with sufficient crosspiece to carry the number of wires which the
Government may consider necessary for the public service. The establishment, protection, and
maintenance of the wires and stations necessary for the public service shall be at the cost of the
Government. (Vol. 5, P. L., p. 247.)
The plaintiff contends that under said section 84 the defendant company is required to erect and maintain posts
for its telegraph wires, of sufficient length and strength, and equipped with sufficient crosspieces to carry the
number of wires which the Government may consider necessary for the public service, and that six wires are
now necessary for the public service.
The respondents answered by a general and special defense. In their special defense they contend that section 84
of Act No. 1459 has been repealed by section 1, paragraph 8 of Act No. 1510 of the United States Philippine
Commission (vol. 5, P. L., pp. 350-358), and that under the provisions of said Act No. 1510 the Government is
entitled to place on the poles of the company four wires only. Act No. 1510 is the charter of the Manila Railroad
32
Company. It was adopted by the United States Philippine Commission on July 7, 1906. Section 1, paragraph 8,
of said Act No. 1510 provides:
8. The grantee (the Manila Railroad Company) shall have the right to construct and operate telegraph,
telephone, and electrical transmission lines over said railways for the use of the railways and their
business, and also, with the approval of the Secretary of War, for public service and commercial
purposes but these latter privileges shall be subject to the following provisions:
In the construction of telegraph or telephone lines along the right of way the grantee (the Manila
Railroad Company) shall erect and maintain poles with sufficient space thereon to permit the
Philippine Government, at the expense of said Government, to place, operate, and maintain four wires
for telegraph, telephone, and electrical transmission for any Government purposes between the termini
of the lines of railways main or branch; and the Philippine Government reserves to itself the right to
construct, maintain, and operate telegraph, telephone, or electrical transmission lines over the right of
way of said railways for commercial military, or government purposes, without unreasonably
interfering with the construction, maintenance, and operation by the grantee of its railways, telegraph,
telephone, and electrical transmission lines.
To answer the question above stated, it becomes necessary to determine whether section 84 of Act No. 1459 is
applicable to the Manila Railroad Company, or whether the manila Railroad Company is governed by section 1,
paragraph 8, of Act No. 1510. As has been said, Act No. 1459 is a general law applicable to corporations
generally, while Act No. 1510 is the charter of the Manila Railroad Company and constitute a contract between
it and the Government.
Inasmuch as Act No. 1510 is the charter of Manila Railroad Company and constitute a contract between it and
the Governmemnt, it would seem that the company is governd by its contract and not by the provisions of any
general law upon questions covered by said contract. From a reading of the said charter or contract it would be
seen that there is no indication that the Government intended to impose upon said company any other conditions
as obligations not expressly found in said charter or contract. If that is true, then certainly the Government
cannot impose upon said company any conditions or obligations found in any general law, which does not
expressly modify said contract.
Section 84 of the Corporation Law (Act No. 1459) was intended to apply to all railways in the Philippine Islands
which did not have a special charter contract. Act No. 1510 applies only to the Manila Railroad Company, one
of the respondents, and being a special charter of said company, its adoption had the effect of superseding the
provisions of the general Corporation Law which are applicable to railraods in general. The special charter (Act
No. 1510) had the effect of superseding the general Corporation Law upon all matters covered by said special
charter. Said Act, inasmuch as it contained a special provision relating to the erection of telegraph and telephone
poles, and the number of wires which the Government might place thereon, superseded the general law upon that
question.
Act No. 1510 is a special charter of the respondent company. It constitutes a contract between the respondent
company and the state; and the state and the grantee of a charter are equally bound by its provisions. For the
state to impose an obligation or a duty upon the respondent company, which is not expressly provided for in the
charter (Act No. 1510), would amount to a violation of said contract between the state and the respondent
company. The provisions of Act No. 1459 relating to the number of wires which the Government may place
upon the poles of the company are different and more enerous than the provisions of the charter upon the same
question. Therefore, to allow the plaintiff to require of the respondent company a compliance with said section
84 of Act No. 1459, would be to require of the respondent company and the performance of an obligation which
is not imposed upon it by its charter. The charter of a corporation is a contract between three parties: (a) it is a
contract between the state and the corporation to which the charter is granted; (b) it is a contact between the
stockholders and the state and (c) it is also a contract between the corporation and its stockholders. (Cook on
Corporations, vol. 2, sec. 494 and cases cited.)
The question is not whether Act No. 1510 repealed Act No. 1459; but whether, after the adoption of Act No.
1510, the respondents are obliged to comply with the special provision above mentioned, contained in Act No.
1459. We must answer that question in the native. Both laws are still in force, unless otherwise repealed. Act No.
1510 is applicable to respondents upon the question before us, while Act No. 1459 is not applicable.
The petitioner, in view of all the foregoing facts and the law applicable thereto, has not shown itself entitled to
the remedy prayed for. The prayer of the petition must, therefore, be denied. And without any finding as to costs,
it is so ordered.
Rural Bank of Salinas vs. Court of Appeals
210 SCRA 510
G.R. No. 96674 June 26, 1992
RURAL BANK OF SALINAS, INC., MANUEL SALUD, LUZVIMINDA TRIAS and FRANCISCO
TRIAS, petitioners,
vs.
COURT OF APPEALS*, SECURITIES AND EXCHANGE COMMISSION, MELANIA A.
GUERRERO, LUZ ANDICO, WILHEMINA G. ROSALES, FRANCISCO M. GUERRERO, JR., and
FRANCISCO GUERRERO , SR.,respondents.
PARAS, J.:
The basic controversy in this case is whether or not the respondent court erred in sustaining the Securities and
Exchange Commission when it compelled by Mandamus the Rural Bank of Salinas to register in its stock and
transfer book the transfer of 473 shares of stock to private respondents. Petitioners maintain that the Petition
forMandamus should have been denied upon the following grounds.
(1) Mandamus cannot be a remedy cognizable by the Securities and Exchange Commission when the purpose is
to register certificates of stock in the names of claimants who are not yet stockholders of a corporation:
(2) There exist valid reasons for refusing to register the transfer of the subject of stock, namely:
(a) a pending controversy over the ownership of the certificates of stock with the Regional
Trial Court;
(b) claims that the Deeds of Assignment covering the subject certificates of stock were
fictitious and antedated; and
(c) claims on a resultant possible deprivation of inheritance share in relation with a
conflicting claim over the subject certificates of stock.
The facts are not disputed.
On June 10, 1979, Clemente G. Guerrero, President of the Rural Bank of Salinas, Inc., executed a Special Power
of Attorney in favor of his wife, private respondent Melania Guerrero, giving and granting the latter full power
and authority to sell or otherwise dispose of and/or mortgage 473 shares of stock of the Bank registered in his
name (represented by the Bank's stock certificates nos. 26, 49 and 65), to execute the proper documents therefor,
and to receive and sign receipts for the dispositions.
On February 27, 1980, and pursuant to said Special Power of Attorney, private respondent Melania Guerrero, as
Attorney-in-Fact, executed a Deed of Assignment for 472 shares out of the 473 shares, in favor of private
respondents Luz Andico (457 shares), Wilhelmina Rosales (10 shares) and Francisco Guerrero, Jr. (5 shares).
33

Almost four months later, or two (2) days before the death of Clemente Guerrero on June 24, 1980, private
respondent Melania Guerrero, pursuant to the same Special Power of Attorney, executed a Deed of
Assignmentfor the remaining one (1) share of stock in favor of private respondent Francisco Guerrero, Sr.
Subsequently, private respondent Melania Guerrero presented to petitioner Rural Bank of Salinas the two (2)
Deeds of Assignment for registration with a request for the transfer in the Bank's stock and transfer book of the
473 shares of stock so assigned, the cancellation of stock certificates in the name of Clemente G. Guerrero, and
the issuance of new stock certificates covering the transferred shares of stocks in the name of the new owners
thereof. However, petitioner Bank denied the request of respondent Melania Guerrero.
On December 5, 1980, private respondent Melania Guerrero filed with the Securities and Exchange
Commission" (SEC) an action for mandamus against petitioners Rural Bank of Salinas, its President and
Corporate Secretary. The case was docketed as SEC Case No. 1979.
Petitioners filed their Answer with counterclaim on December 19, 1980 alleging the upon the death of Clemente
G. Guerrero, his 473 shares of stock became the property of his estate, and his property and that of his widow
should first be settled and liquidated in accordance with law before any distribution can be effected so that
petitioners may not be a party to any scheme to evade payment of estate or inheritance tax and in order to avoid
liability to any third persons or creditors of the late Clemente G. Guerrero.
On January 29, 1981, a motion for intervention was filed by Maripol Guerrero, a legally adopted daughter of the
late Clemente G. Guerrero and private respondent Melania Guerrero, who stated therein that on November 26,
1980 (almost two weeks before the filing of the petition for Mandamus) a Petition for the administration of the
estate of the late Clemente G. Guerrero had been filed with the Regional Trial Court, Pasig, Branch XI, docketed
as Special Proceedings No. 9400. Maripol Guerrero further claimed that the Deeds of Assignment for the subject
shares of stock are fictitious and antedated; that said conveyances are donations since the considerations therefor
are below the book value of the shares, the assignees/private respondents being close relatives of private
respondent Melania Guerrero; and that the transfer of the shares in question to assignees/private respondents,
other than private respondent Melania Guerrero, would deprive her (Maripol Guerrero) of her rightful share in
the inheritance. The SEC hearing officer denied the Motion for Intervention for lack of merit. On appeal, the
SEC En Banc affirmed the decision of the hearing officer.
Intervenor Guerrero filed a complaint before the then Court of First Instance of Rizal, Quezon City Branch,
against private respondents for the annulment of the Deeds of Assignment, docketed as Civil Case No. Q-32050.
Petitioners, on the other hand, filed a Motion to Dismiss and/or to Suspend Hearing of SEC Case No. 1979 until
after the question of whether the subject Deeds of Assignment are fictitious, void or simulated is resolved in
Civil Case No. Q-32050. The SEC Hearing Officer denied said motion.
On December 10, 1984, the SEC Hearing Officer rendered a Decision granting the writ of Mandamus prayed for
by the private respondents and directing petitioners to cancel stock certificates nos. 26, 49 and 65 of the Bank,
all in the name of Clemente G. Guerrero, and to issue new certificates in the names of private respondents,
except Melania Guerrero. The dispositive, portion of the decision reads:
WHEREFORE, judgment is hereby rendered in favor of the petitioners and against the respondents,
directing the latter, particularly the corporate secretary of respondent Rural Bank of Salinas, Inc., to
register in the latter's Stock and Transfer Book the transfer of 473 shares of stock of respondent Bank
and to cancel Stock Certificates Nos. 26, 45 and 65 and issue new Stock Certificates covering the
transferred shares in favor of petitioners, as follows:
1. Luz Andico 457 shares
2. Wilhelmina Rosales 10 shares
3. Francisco Guerrero, Jr. 5 shares
4. Francisco Guerrero, Sr. 1 share
and to pay to the above-named petitioners, the dividends for said shares corresponding to the years
1981, 1982, 1983 and 1984 without interest.
No pronouncement as to costs.
SO ORDERED. (p. 88, Rollo)
On appeal, the SEC En Banc affirmed the decision of the Hearing Officer. Petitioner filed a petition for review
with the Court of Appeals but said Court likewise affirmed the decision of the SEC.
We rule in favor of the respondents.
Section 5 (b) of P.D. No. 902-A grants to the SEC the original and exclusive jurisdiction to hear and decide
cases involving intracorporate controversies. An intracorporate controversy has been defined as one which arises
between a stockholder and the corporation. There is no distinction, qualification, nor any exception whatsoever
(Rivera vs. Florendo, 144 SCRA 643 [1986]). The case at bar involves shares of stock, their registration,
cancellation and issuances thereof by petitioner Rural Bank of Salinas. It is therefore within the power of
respondent SEC to adjudicate.
Respondent SEC correctly ruled in favor of the registering of the shares of stock in question in private
respondent's names. Such ruling finds support under Section 63 of the Corporation Code, to wit:
Sec. 63. . . . Shares of stock so issued are personal property and may be transferred by
delivery of the certificate or certificates indorsed by the owner or his attorney-in-fact or
other person legally authorized to make the transfer. No transfer, however, shall be valid,
except as between the parties, until the transfer is recorded in the books of the corporation . .
.
In the case of Fleisher vs. Botica Nolasco, 47 Phil. 583, the Court interpreted Sec. 63 in his wise:
Said Section (Sec. 35 of Act 1459 [now Sec. 63 of the Corporation Code]) contemplates no
restriction as to whom the stocks may be transferred. It does not suggest that any
discrimination may be created by the corporation in favor of, or against a certain purchaser.
The owner of shares, as owner of personal property, is at liberty, under said section to
dispose them in favor of whomever he pleases, without limitation in this respect, than the
general provisions of law. . . .
The only limitation imposed by Section 63 of the Corporation Code is when the corporation holds any
unpaid claim against the shares intended to be transferred, which is absent here.
A corporation, either by its board, its by-laws, or the act of its officers, cannot create restrictions in stock
transfers, because:
. . . Restrictions in the traffic of stock must have their source in legislative enactment, as the corporation
itself cannot create such impediment. By-laws are intended merely for the protection of the corporation, and
prescribe regulation, not restriction; they are always subject to the charter of the corporation. The
corporation, in the absence of such power, cannot ordinarily inquire into or pass upon the legality of the
transactions by which its stock passes from one person to another, nor can it question the consideration
upon which a sale is based. . . . (Tomson on Corporation Sec. 4137, citedin Fleisher vs. Nolasco, Supra).
34
The right of a transferee/assignee to have stocks transferred to his name is an inherent right flowing from his
ownership of the stocks. Thus:
Whenever a corporation refuses to transfer and register stock in cases like the present, mandamuswill lie to
compel the officers of the corporation to transfer said stock in the books of the corporation" (26, Cyc. 347,
Hyer vs. Bryan, 19 Phil. 138; Fleisher vs. Botica Nolasco, 47 Phil. 583, 594).
The corporation's obligation to register is ministerial.
In transferring stock, the secretary of a corporation acts in purely ministerial capacity, and does not try to
decide the question of ownership. (Fletcher, Sec. 5528, page 434).
The duty of the corporation to transfer is a ministerial one and if it refuses to make such transaction without
good cause, it may be compelled to do so by mandamus. (See. 5518, 12 Fletcher 394)
For the petitioner Rural Bank of Salinas to refuse registration of the transferred shares in its stock and transfer
book, which duty is ministerial on its part, is to render nugatory and ineffectual the spirit and intent of Section 63
of the Corporation Code. Thus, respondent Court of Appeals did not err in upholding the Decision of respondent
SEC affirming the Decision of its Hearing Officer directing the registration of the 473 shares in the stock and
transfer book in the names of private respondents. At all events, the registration is without prejudice to the
proceedings in court to determine the validity of the Deeds of Assignment of the shares of stock in question.
WHEREFORE, the petition is DISMISSED for lack of merit.
Red Line Transit v. Rural Transit
60 Phil 549
G.R. No. 41570 September 6, 1934
RED LINE TRANSPORTATION CO., petitioner-appellant,
vs.
RURAL TRANSIT CO., LTD., respondent-appellee.
L. D. Lockwood for appellant.
Ohnick and Opisso for appellee.
BUTTE, J.:
This case is before us on a petition for review of an order of the Public Service Commission entered December
21, 1932, granting to the Rural Transit Company, Ltd., a certificate of public convenience to operate a
transportation service between Ilagan in the Province of Isabela and Tuguegarao in the Province of Cagayan, and
additional trips in its existing express service between Manila Tuguegarao.
On June 4, 1932, the Rural Transit Company, Ltd., a Philippine corporation, filed with the Public Company
Service Commission an application in which it is stated in substance that it is the holder of a certificate or public
convenience to operate a passenger bus service between Manila and Tuguegarao; that it is the only operator of
direct service between said points and the present authorized schedule of only one trip daily is not sufficient; that
it will be also to the public convenience to grant the applicant a certificate for a new service between Tuguegarao
and Ilagan.
On July 22, 1932, the appellant, Red Line Transportation Company, filed an opposition to the said application
alleging in substance that as to the service between Tuguegarao and Ilagan, the oppositor already holds a
certificate of public convenience and is rendering adequate and satisfactory service; that the granting of the
application of the Rural Transit Company, Ltd., would not serve public convenience but would constitute a
ruinous competition for the oppositor over said route.
After testimony was taken, the commission, on December 21, 1932, approved the application of the Rural
Transit Company, Ltd., and ordered that the certificate of public convenience applied for be "issued to the
applicant Rural Transit Company, Ltd.," with the condition, among others, that "all the other terms and
conditions of the various certificates of public convenience of the herein applicant and herein incorporated are
made a part hereof."
On January 14, 1933, the oppositor Red Line Transportation Company filed a motion for rehearing and
reconsideration in which it called the commission's attention to the fact that there was pending in the Court of
First Instance of Manila case N. 42343, an application for the voluntary dissolution of the corporation, Rural
Transit Company, Ltd. Said motion for reconsideration was set down for hearing on March 24, 1933. On March
23, 1933, the Rural Transit Company, Ltd., the applicant, filed a motion for postponement. This motion was
verified by M. Olsen who swears "that he was the secretary of the Rural Transit Company, Ltd., in the above
entitled case." Upon the hearing of the motion for reconsideration, the commission admitted without objection
the following documents filed in said case No. 42343 in the Court of First Instance of Manila for the dissolution
of the Rural Transit Company, Ltd. the petition for dissolution dated July 6, 1932, the decision of the said Court
of First Instance of Manila, dated February 28, 1933, decreeing the dissolution of the Rural Transit Company,
Ltd.
At the trial of this case before the Public Service Commission an issue was raised as to who was the real party in
interest making the application, whether the Rural Transit Company, Ltd., as appeared on the face of the
application, or the Bachrach Motor Company, Inc., using name of the Rural Transit Company, Ltd., as a trade
name. The evidence given by the applicant's secretary, Olsen, is certainly very dubious and confusing, as may be
seen from the following:
Q. Will you please answer the question whether it is the Bachrach Motor Company operating under the
trade name of the Rural Transit Company, Limited, or whether it is the Rural Transit Company, Limited in its
own name this application was filed?
A. The Bachrach Motor Company is the principal stockholder.
Q. Please answer the question.
ESPELETA. Objecion porque la pregunta ya ha sido contestada.
JUEZ. Puede contestar.
A. I do not know what the legal construction or relationship existing between the two.
JUDGE. I do not know what is in your mind by not telling the real applicant in this case?
A. It is the Rural Transit Company, Ltd.
35
JUDGE. As an entity by itself and not by the Bachrach Motor Company? A. Yes, sir.

A. I do not know. I have not given that phase of the matter much thought, as in previous occassion had LOCKWOOD. I move that this case be dismissed, your Honor, on the ground that this application was made in
not necessitated. the name of one party but the real owner is another party.

JUDGE. In filing this application, you filed it for the operator on that line? Is it not! ESPELETA. We object to that petition.

A. Yes, sir. JUDGE. I will have that in mind when I decide the case. If I agree with you everything would be finished.

JUDGE. Who is that operator? The Bachrach Motor Company, Inc., entered no appearance and ostensibly took no part in the hearing of the
application of the Rural Transit Company, Ltd. It may be a matter of some surprise that the commission did not
A. The Rural Transit Company, Ltd. on its own motion order the amendment of the application by substituting the Bachrach Motor Company, Inc., as
the applicant. However, the hearing proceeded on the application as filed and the decision of December 2, 1932,
was rendered in favor of the Rural Transit Company, Ltd., and the certificate ordered to be issued in its name, in
JUDGE. By itself, or as a commercial name of the Bachrach Motor Company? the face of the evidence that the said corporation was not the real party in interest. In its said decision, the
commission undertook to meet the objection by referring to its resolution of November 26, 1932, entered in
A. I cannot say. another case. This resolution in case No. 23217 concludes as follows:

ESPELETA. The Rural Transit Company, Ltd., is a corporation duly established in accordance with the laws of
the Philippine Islands.
JUDGE. According to the records of this commission the Bachrach Motor Company is the owner of the
certificates and the Rural Transit Company, Ltd., is operating without any certificate.
JUDGE. If you filed this application for the Rural Transit Company, Ltd., and afterwards it is found out that the
Rural Transit Company, Ltd., is not an operator, everything will be turned down.
JUDGE. My question was, when you filed this application you evidently made it for the operator?
A. Yes, sir.
JUDGE. Who was that operator you had in mind?
A. According to the status of the ownership of the certificates of the former Rural Transit Company, the
operator was the operator authorized in case No. 23217 to whom all of the assets of the former Rural Transit
Company were sold.
Premises considered we hereby authorize the Bachrach Motor Co., Inc., to continue using the name of "Rural
Transit Co., Ltd.," as its trade name in all the applications, motions or other petitions to be filed in this
commission in connection with said business and that this authority is given retroactive effect as of the date, of
filing of the application in this case, to wit, April 29, 1930.
We know of no law that empowers the Public Service Commission or any court in this jurisdiction to authorize
one corporation to assume the name of another corporation as a trade name. Both the Rural Transit Company,
Ltd., and the Bachrach Motor Co., Inc., are Philippine corporations and the very law of their creation and
continued existence requires each to adopt and certify a distinctive name. The incorporators "constitute a body
politic and corporate under the name stated in the certificate." (Section 11, Act No. 1459, as amended.) A
corporation has the power "of succession by its corporate name." (Section 13, ibid.) The name of a corporation is
therefore essential to its existence. It cannot change its name except in the manner provided by the statute. By
that name alone is it authorized to transact business. The law gives a corporation no express or implied authority
to assume another name that is unappropriated: still less that of another corporation, which is expressly set apart
for it and protected by the law. If any corporation could assume at pleasure as an unregistered trade name the
name of another corporation, this practice would result in confusion and open the door to frauds and evasions
and difficulties of administration and supervision. The policy of the law expressed in our corporation statute and
the Code of Commerce is clearly against such a practice. (Cf. Scarsdale Pub. Co. Colonial Press vs. Carter, 116
New York Supplement, 731; Svenska Nat. F. i. C. vs. Swedish Nat. Assn., 205 Illinois [Appellate Courts], 428,
434.)

JUDGE. Bachrach Motor Company? The order of the commission of November 26, 1932, authorizing the Bachrach Motor Co., Incorporated, to
assume the name of the Rural Transit Co., Ltd. likewise in corporated, as its trade name being void, and
A. All actions have been prosecuted in the name of the Rural Transit Company, Ltd. accepting the order of December 21, 1932, at its face as granting a certificate of public convenience to the
applicant Rural Transit Co., Ltd., the said order last mentioned is set aside and vacated on the ground that the
Rural Transit Company, Ltd., is not the real party in interest and its application was fictitious.
JUDGE. You mean the Bachrach Motor Company, Inc., doing business under the name of the Rural Transit
Company, Ltd.?
In view of the dissolution of the Rural Transit Company, Ltd. by judicial decree of February 28, 1933, we do not
see how we can assess costs against said respondent, Rural Transit Company, Ltd.
36
 Philippine Insurance v. Hartigan
34 SCRA 252
G.R. No. L-26370 July 31, 1970
PHILIPPINE FIRST INSURANCE COMPANY, INC., plaintiff-appellant,
vs.
MARIA CARMEN HARTIGAN, CGH, and O. ENGKEE, defendants-appellees.
Bausa, Ampil & Suarez for plaintiff-appellant.
Nicasio E. Martin for defendants-appellees.
BARREDO, J.:
Appeal from the decision dated 6 October 1962 of the Court of First Instance of Manila — dismissing the action
in its Civil Case No. 48925 — brought by the herein plaintiff-appellant Philippine First Insurance Co., Inc. to the
Court of Appeals which could, upon finding that the said appeal raises purely questions of law, declared itself
without jurisdiction to entertain the same and, in its resolution dated 15 July 1966, certified the records thereof to
this Court for proper determination.
The antecedent facts are set forth in the pertinent portions of the resolution of the Court of Appeals referred to as
follows:
According to the complaint, plaintiff was originally organized as an insurance corporation under the name of
'The Yek Tong Lin Fire and Marine Insurance Co., Ltd.' The articles of incorporation originally presented before
the Security and Exchange Commissioner and acknowledged before Notary Public Mr. E. D. Ignacio on June 1,
1953 state that the name of the corporation was 'The Yek Tong Lin Fire and Marine Insurance Co., Ltd.' On May
26, 1961 the articles of incorporation were amended pursuant to a certificate of the Board of Directors dated
March 8, 1961 changing the name of the corporation to 'Philippine First Insurance Co., Inc.'.
The complaint alleges that the plaintiff Philippine First Insurance Co., Inc., doing business under the name of
'The Yek Tong Lin Fire and Marine Insurance Co., Lt.' signed as co-maker together with defendant Maria
Carmen Hartigan, CGH, a promissory note for P5,000.00 in favor of the China Banking Corporation payable
within 30 days after the date of the promissory note with the usual banking interest; that the plaintiff agreed to
act as such co-maker of the promissory note upon the application of the defendant Maria Carmen Hartigan,
CGH, who together with Antonio F. Chua and Chang Ka Fu, signed an indemnity agreement in favor of the
plaintiff, undertaking jointly and severally, to pay the plaintiff damages, losses or expenses of whatever kind or
nature, including attorney's fees and legal costs, which the plaintiff may sustain as a result of the execution by
the plaintiff and co-maker of Maria Carmen Hartigan, CGH, of the promissory note above-referred to; that as a
result of the execution of the promissory note by the plaintiff and Maria Carmen Hartigan, CGH, the China
Banking Corporation delivered to the defendant Maria Carmen Hartigan, CGH, the sum of P5,000.00 which said
defendant failed to pay in full, such that on August 31, 1961 the same was. renewed and as of November 27,
1961 there was due on account of the promissory note the sum of P4,559.50 including interest. The complaint
ends with a prayer for judgment against the defendants, jointly and severally, for the sum of P4,559.50 with
interest at the rate of 12% per annum from November 23, 1961 plus P911.90 by way of attorney's fees and costs.
Although O. Engkee was made as party defendant in the caption of the complaint, his name is not mentioned in
the body of said complaint. However, his name Appears in the Annex A attached to the complaint which is the
counter indemnity agreement supposed to have been signed according to the complaint by Maria Carmen
Hartigan, CGH, Antonio F. Chua and Chang Ka Fu.
In their answer the defendants deny the allegation that the plaintiff formerly conducted business under the name
and style of 'The Yek Tong Lin Fire and Marine Insurance Co., Ltd.' They admit the execution of the indemnity
agreement but they claim that they signed said agreement in favor of the Yek Tong Lin Fire and Marine
Insurance Co., Ltd.' and not in favor of the plaintiff. They likewise admit that they failed to pay the promissory
note when it fell due but they allege that since their obligation with the China Banking Corporation based on the
promissory note still subsists, the surety who co-signed the promissory note is not entitled to collect the value
thereof from the defendants otherwise they will be liable for double amount of their obligation, there being no
allegation that the surety has paid the obligation to the creditor.
By way of special defense, defendants claim that there is no privity of contract between the plaintiff and the
defendants and consequently, the plaintiff has no cause of action against them, considering that the complaint
does not allege that the plaintiff and the 'Yek Tong Lin Fire and Marine Insurance Co., Ltd.' are one and the
same or that the plaintiff has acquired the rights of the latter. The parties after the admission of Exhibit A which
is the amended articles of incorporation and Exhibit 1 which is a demand letter dated August 16, 1962 signed by
the manager of the loans and discount department of the China Banking Corporation showing that the
promissory note up to said date in the sum of P4,500.00 was still unpaid, submitted the case for decision based
on the pleadings.
Under date of 6 October 1962, the Court of First Instance of Manila rendered the decision appealed. It dismissed
the action with costs against the plaintiff Philippine First Insurance Co., Inc., reasoning as follows:
... With these undisputed facts in mind, the parties correctly concluded that the issues for resolution by this Court
are as follows:
(a) Whether or not the plaintiff is the real party in interest that may validly sue on the indemnity agreement
signed by the defendants and the Yek Tong Lin Fire & Marine Insurance Co., Ltd. (Annex A to plaintiff's
complaint ); and
(b) Whether or not a suit for indemnity or reimbursement may under said indemnity agreement prosper without
plaintiff having yet paid the amount due under said promissory note.
In the first place, the change of name of the Yek Tong Lin Fire & Marine Insurance Co., Ltd. to the Philippines
First Insurance Co., Inc. is of dubious validity. Such change of name in effect dissolved the original corporation
by a process of dissolution not authorized by our corporation law (see Secs. 62 and 67, inclusive, of our
Corporation Law). Moreover, said change of name, amounting to a dissolution of the Yek Tong Lin Fire &
Marine Insurance Co., Ltd., does not appear to have been effected with the written note or assent of stockholders
representing at least two-thirds of the subscribed capital stock of the corporation, a voting proportion required
not only for the dissolution of a corporation but also for any amendment of its articles of incorporation (Secs. 18
and 62, Corporation Law). Furthermore, such change of corporate name appears to be against public policy and
may be effected only by express authority of law (Red Line Transportation Co. v. Rural Transit Co., Ltd., 60
Phil. 549, 555; Cincinnati Cooperage Co., Ltd. vs. Vate, 26 SW 538, 539; Pilsen Brewing Co. vs. Wallace, 125
NE 714), but there is nothing in our corporation law authorizing the change of corporate name in this
jurisdiction.
In the second place, assuming that the change of name of the Yek Tong Lin Fire & Marine Insurance Co. Ltd., to
Philippines pine First Insurance Co., Inc., as accomplished on March 8, 1961, is valid, that would mean that the
original corporation, the Yek Tong Lin Fire & Marine Insurance Co., Ltd., became dissolved and of no further
37
existence since March 8, 1961, so that on May 15, 1961, the date the indemnity agreement, Annex A, was
executed, said original corporation bad no more power to enter into any agreement with the defendants, and the
agreement entered into by it was ineffective for lack of capacity of said dissolved corporation to enter into said
agreement. At any rate, even if we hold that said change of name is valid, the fact remains that there is no
evidence showing that the new entity, the Philippine First Insurance Co., Inc. has with the consent of the original
parties, assumed the obligations or was assigned the rights of action in the original corporation, the Yek Tong
Lin Fire & Marine Insurance Co., Ltd. In other words, there is no evidence of conventional subrogation of the
Plaintiffs in the rights of the Yek Tong Lin Fire & Marine Insurance Co., Ltd. under said indemnity agreement
(Arts. 1300, 1301, New Civil Code). without such subrogation assignment of rights, the herein plaintiff has no
cause of action against the defendants, and is, therefore, not the right party in interest as plaintiff.
Last, but not least, assuming that the said change of name was legal and operated to dissolve the original
corporation, the dissolved corporation, must pursuant to Sec. 77 of our corporation law, be deemed as continuing
as a body corporate for three (3) years from March 8, 1961 for the purpose of prosecuting and defending suits. It
is, therefore, the Yek Tong Lin Fire & Marine Insurance Co., Ltd. that is the proper party to sue the defendants
under said indemnity agreement up to March 8, 1964.
Having arrived at the foregoing conclusions, this Court need not squarely pass upon issue (b) formulated above.
WHEREFORE, plaintiff's action is hereby dismissed, with costs against the plaintiff.
In due time, the Philippine First Insurance Company, Inc. moved for reconsideration of the decision aforesaid,
but said motion was denied on December 3, 1962 in an order worded thus:
The motion for reconsideration, dated November 8, 1962, raises no new issue that we failed to consider in
rendering our decision of October 6, 1962. However, it gives us an opportunity to amplify our decision as
regards the question of change of name of a corporation in this jurisdiction.
We find nothing in our Corporation Law authorizing a change of name of a corporation organized pursuant to its
provisions. Sec. 18 of the Corporation Law authorizes, in our opinion, amendment to the Articles of
Incorporation of a corporation only as to matters other than its corporate name. Once a corporation is organized
in this jurisdiction by the execution and registration of its Articles of Incorporation, it shall continue to exist
under its corporate name for the lifetime of its corporate existence fixed in its Articles of Incorporation, unless
sooner legally dissolved (Sec. 11, Corp. Law). Significantly, change of name is not one of the methods of
dissolution of corporations expressly authorized by our Corporation Law. Also significant is the fact that the
power to change its corporate name is not one of the general powers conferred on corporations in this
jurisdiction (Sec. 13, Corp. Law). The enumeration of corporate powers made in our Corporation Law implies
the exclusion of all others (Thomas v. West Jersey R. Co., 101 U.S. 71, 25 L. ed. 950). It is obvious, in this
connection, that change of name is not one of the powers necessary to the exercise of the powers conferred on
corporations by said Sec. 13 (see Sec. 14, Corp. Law).
To rule that Sec. 18 of our Corporation Law authorizes the change of name of a corporation by amendment of its
Articles of Incorporation is to indulge in judicial legislation. We have examined the cases cited in Volume 13 of
American Jurisprudence in support of the proposition that the general power to alter or amend the charter of a
corporation necessarily includes the power to alter the name of a corporation, and find no justification for said
conclusion arrived at by the editors of American Jurisprudence. On the contrary, the annotations in favor of
plaintiff's view appear to have been based on decisions in cases where the statute itself expressly authorizes
change of corporate name by amendment of its Articles of Incorporation. The correct rule in harmony with the
provisions of our Corporation Law is well expressed in an English case as follows:
After a company has been completely register without defect or omission, so as to be incorporated by the name
set forth in the deed of settlement, such incorporated company has not the power to change its name ... Although
the King by his prerogative might incorporate by a new name, and the newly named corporation might retain
former rights, and sometimes its former name also, ... it never appears to be such an act as the corporation could
do by itself, but required the same power as created the corporation. (Reg. v. Registrar of Joint Stock Cos 10
Q.B. 839, 59 E.C.L. 839).
The contrary view appears to represent the minority doctrine, judging from the annotations on decided cases on
the matter.
The movant invokes as persuasive precedent the action of the Securities Commissioner in tacitly approving the
Amended, Articles of Incorporation on May 26, 1961. We regret that we cannot in good conscience lend
approval to this action of the Securities and Exchange Commissioner. We find no justification, legal, moral, or
practical, for adhering to the view taken by the Securities and Exchange Commissioner that the name of a
corporation in the Philippines may be changed by mere amendment of its Articles of Incorporation as to its
corporate name. A change of corporate name would serve no useful purpose, but on the contrary would most
probably cause confusion. Only a dubious purpose could inspire a change of a corporate. name which, unlike a
natural person's name, was chosen by the incorporators themselves; and our Courts should not lend their
assistance to the accomplishment of dubious purposes.
WHEREFORE, we hereby deny plaintiff's motion for reconsideration, dated November 8, 1962, for lack of
merit.
In this appeal appellant contends that —
I
THE TRIAL COURT ERRED IN HOLDING THAT IN THIS JURISDICTION, THERE IS NOTHING IN
OUR CORPORATION LAW AUTHORIZING THE CHANGE OF CORPORATE NAME;
II
THE TRIAL COURT ERRED IN DECLARING THAT A CHANGE OF CORPORATE NAME APPEARS TO
BE AGAINST PUBLIC POLICY;
III
THE TRIAL COURT ERRED IN HOLDING THAT A CHANGE OF CORPORATE NAME HAS THE
LEGAL EFFECT OF DISSOLVING THE ORIGINAL CORPORATION:
IV
38
THE TRIAL COURT ERRED IN HOLDING THAT THE CHANGE OF NAME OF THE YEK TONG LIN
FIRE & MARINE INSURANCE CO., LTD. IS OF DUBIOUS VALIDITY;
V stock.
THE TRIAL COURT ERRED IN HOLDING THAT THE APPELLANT HEREIN IS NOT THE RIGHT
PARTY INTEREST TO SUE DEFENDANTS-APPELLEES;
IV
THE TRIAL COURT FINALLY ERRED IN DISMISSING THE COMPLAINT.
Appellant's Position is correct; all the above assignments of error are well taken. The whole case, however,
revolves around only one question. May a Philippine corporation change its name and still retain its original
personality and individuality as such?
The answer is not difficult to find. True, under Section 6 of the Corporation Law, the first thing required to be
stated in the Articles of Incorporation of any corn corporation is its name, but it is only one among many matters
equally if not more important, that must be stated therein. Thus, it is also required, for example, to state the
number and names of and residences of the incorporators and the residence or location of the principal office of
the corporation, its term of existence, the amount of its capital stock and the number of shares into which it is
divided, etc., etc.
On the other hand, Section 18 explicitly permits the articles of incorporation to be amended thus:
Sec. 18. — Any corporation may for legitimate corporate purpose or purposes, amend its articles of
incorporation by a majority vote of its board of directors or trustees and the vote or written assent of two-thirds
of its members, if it be a nonstock corporation or, if it be a stock corporation, by the vote or written assent of the
stockholders representing at least two-thirds of the subscribed capital stock of the corporation Provided,
however, That if such amendment to the articles of incorporation should consist in extending the corporate
existence or in any change in the rights of holders of shares of any class, or would authorize shares with
preferences in any respect superior to those of outstanding shares of any class, or would restrict the rights of any
stockholder, then any stockholder who did not vote for such corporate action may, within forty days after the
date upon which such action was authorized, object thereto in writing and demand Payment for his shares. If,
after such a demand by a stockholder, the corporation and the stockholder cannot agree upon the value of his
share or shares at the time such corporate action was authorized, such values all be ascertained by three
disinterested persons, one of whom shall be named by the stockholder, another by the corporation, and the third
by the two thus chosen. The findings of the appraisers shall be final, and if their award is not paid by the
corporation within thirty days after it is made, it may be recovered in an action by the stockholder against the
corporation. Upon payment by the corporation to the stockholder of the agreed or awarded price of his share or
shares, the stockholder shall forthwith transfer and assign the share or shares held by him as directed by the
corporation: Provided, however, That their own shares of stock purchased or otherwise acquired by banks, trust
companies, and insurance companies, should be disposed of within six months after acquiring title thereto.
Unless and until such amendment to the articles of incorporation shall have been abandoned or the action
rescinded, the stockholder making such demand in writing shall cease to be a stockholder and shall have no
rights with respect to such shares, except the right to receive payment therefor as aforesaid.
A stockholder shall not be entitled to payment for his shares under the provisions of this section unless the value
of the corporate assets which would remain after such payment would be at least equal to the aggregate amount
of its debts and liabilities and the aggregate par value and/or issued value of the remaining subscribed capital
A copy of the articles of incorporation as amended, duly certified to be correct by the president and the secretary
of the corporation and a majority of the board of directors or trustees, shall be filed with the Securities and
Exchange Commissioner, who shall attach the same to the original articles of incorporation, on file in his office.
From the time of filing such copy of the amended articles of incorporation, the corporation shall have the same
powers and it and the members and stockholders thereof shall thereafter be subject to the same liabilities as if
such amendment had been embraced in the original articles of incorporation: Provided, however, That should the
amendment consist in extending the corporate life, the extension shall not exceed 50 years in any one instance.
Provided, further, That the original articles and amended articles together shall contain all provisions required by
law to be set out in the articles of incorporation: And provided, further, That nothing in this section shall be
construed to authorize any corporation to increase or diminish its capital stock or so as to effect any rights or
actions which accrued to others between the time of filing the original articles of incorporation and the filing of
the amended articles.
The Securities and, Exchange Commissioner shall be entitled to collect and receive the sum of ten pesos for
filing said copy of the amended articles of incorporation. Provided, however, That when the amendment consists
in extending the term of corporate existence, the Securities and Exchange Commissioner shall be entitled to
collect and receive for the filing of its amended articles of incorporation the same fees collectible under existing
law for the filing of articles of incorporation. The Securities & Exchange Commissioner shall not hereafter file
any amendment to the articles of incorporation of any bank, banking institution, or building and loan association
unless accompanied by a certificate of the Monetary Board (of the Central Bank) to the effect that such
amendment is in accordance with law. (As further amended by Act No. 3610, Sec. 2 and Sec. 9. R.A. No. 337
and R.A. No. 3531.)
It can be gleaned at once that this section does not only authorize corporations to amend their charter; it also lays
down the procedure for such amendment; and, what is more relevant to the present discussion, it contains
provisos restricting the power to amend when it comes to the term of their existence and the increase or decrease
of the capital stock. There is no prohibition therein against the change of name. The inference is clear that such a
change is allowed, for if the legislature had intended to enjoin corporations from changing names, it would have
expressly stated so in this section or in any other provision of the law.
No doubt, "(the) name (of a corporation) is peculiarly important as necessary to the very existence of a
corporation. The general rule as to corporations is that each corporation shall have a name by which it is to sue
and be sued and do all legal acts. The name of a corporation in this respect designates the corporation in the
same manner as the name of an individual designates the person." 1 Since an individual has the right to change
his name under certain conditions, there is no compelling reason why a corporation may not enjoy the same
right. There is nothing sacrosanct in a name when it comes to artificial beings. The sentimental considerations
which individuals attach to their names are not present in corporations and partnerships. Of course, as in the case
of an individual, such change may not be made exclusively. by the corporation's own act. It has to follow the
procedure prescribed by law for the purpose; and this is what is important and indispensably prescribed — strict
adherence to such procedure.
Local well known corporation law commentators are unanimous in the view that a corporation may change its
name by merely amending its charter in the manner prescribed by law. 2 American authorities which have
39
persuasive force here in this regard because our corporation law is of American origin, the same being a sort of
codification of American corporate law, 3 are of the same opinion.
A general power to alter or amend the charter of a corporation necessarily includes the power to alter the name
of the corporation. Ft. Pitt Bldg., etc., Assoc. v. Model Plan Bldg., etc., Assoc., 159 Pa. St. 308, 28 Atl. 215; In
re Fidelity Mut. Aid Assoc., 12 W.N.C. (Pa.) 271; Excelsior Oil Co., 3 Pa. Co. Ct. 184; Wetherill Steel Casting
Co., 5 Pa. Co. Ct. 337.
xxx xxx xxx
Under the General Laws of Rhode Island, c 176, sec. 7, relating to an increase of the capital stock of a
corporation, it is provided that 'such agreement may be amended in any other particular, excepting as provided in
the following section', which relates to a decrease of the capital stock This section has been held to authorize a
change in the name of a corporation. Armington v. Palmer, 21 R.I. 109, 42 Atl. 308, 43, L.R.A. 95, 79 Am. St.
Rep. 786. (Vol. 19, American and English Annotated Cases, p. 1239.)
Fletcher, a standard authority on American an corporation law also says:
Statutes are to be found in the various jurisdictions dealing with the matter of change in corporate names. Such
statutes have been subjected to judicial construction and have, in the main, been upheld as constitutional. In
direct terms or by necessary implication, they authorize corporations new names and prescribe the mode of
procedure for that purpose. The same steps must be taken under some statutes to effect a change in a corporate
name, as when any other amendment of the corporate charter is sought .... When the general law thus deals with
the subject, a corporation can change its name only in the manner provided. (6 Fletcher, Cyclopedia of the Law
of Private Corporations, 1968 Revised Volume, pp. 212-213.) (Emphasis supplied)
The learned trial judge held that the above-quoted proposition are not supported by the weight of authority
because they are based on decisions in cases where the statutes expressly authorize change of corporate name by
amendment of the articles of incorporation. We have carefully examined these authorities and We are satisfied of
their relevance. Even Lord Denman who has been quoted by His Honor from In Reg. v. Registrar of Joint Stock
Cos. 10, Q.B., 59 E.C.L. maintains merely that the change of its name never appears to be such an act as the
corporation could do for itself, but required ;the same Power as created a corporation." What seems to have been
overlooked, therefore, is that the procedure prescribes by Section 18 of our Corporation Law for the amendment
of corporate charters is practically identical with that for the incorporation itself of a corporation.
In the appealed order of dismissal, the trial court, made the observation that, according to this Court in Red Line
Transportation Co. v. Rural Transit Co., Ltd., 60 Phil, 549, 555, change of name of a corporation is against
public policy. We must clarify that such is not the import of Our said decision. What this Court held in that case
is simply that:
We know of no law that empowers the Public Service Commission or any court in this jurisdiction to authorize
one corporation to assume the name of another corporation as a trade name. Both the Rural Transit Company,
Ltd., and the Bachrach Motor Co., Inc., are Philippine corporations and the very law of their creation and
continued existence requires each to adopt and certify a distinctive name. The incorporators 'constitute a body
politic and corporate under the name stated in the certificate.' (Section 11, Act No. 1459, as amended.) A
corporation has the power 'of succession by its corporate name.' (Section 13, ibid.) The name of a corporation is
therefore essential to its existence. It cannot change its name except in the manner provided by the statute. By
that name alone is it authorized to transact business. The law gives a corporation no express or implied authority
to assume another name that is unappropriated; still less that of another corporation, which is expressly set apart
for it and protected by the law. If any corporation could assume at pleasure as an unregistered trade name the
name of another corporation, this practice would result in confusion and open the door to frauds and evasions
and difficulties of administration and supervision. The policy of the law as expressed our corporation statute and
the Code of Commerce is clearly against such a practice. (Cf. Scarsdale Pub. Co. — Colonial Press vs. Carter,
116 New York Supplement, 731; Svenska Nat. F. i. C. vs. Swedish Nat. Assn., 205 Illinois [Appellate Courts],
428, 434.)
In other words, what We have held to be contrary to public policy is the use by one corporation of the name of
another corporation as its trade name. We are certain no one will disagree that such an act can only "result in
confusion and open the door to frauds and evasions and difficulties of administration and supervision." Surely,
the Red Line case was not one of change of name.
Neither can We share the posture of His Honor that the change of name of a corporation results in its dissolution.
There is unanimity of authorities to the contrary.
An authorized change in the name of a corporation has no more effect upon its identity as a corporation than a
change of name of a natural person has upon his identity. It does not affect the rights of the corporation or lessen
or add to its obligations. After a corporation has effected a change in its name it should sue and be sued in its
new name .... (13 Am. Jur. 276-277, citing cases.)
A mere change in the name of a corporation, either by the legislature or by the corporators or stockholders under
legislative authority, does not, generally speaking, affect the identity of the corporation, nor in any way affect the
rights, privileges, or obligations previously acquired or incurred by it. Indeed, it has been said that a change of
name by a corporation has no more effect upon the identity of the corporation than a change of name by a natural
person has upon the identity of such person. The corporation, upon such change in its name, is in no sense a new
corporation, nor the successor of the original one, but remains and continues to be the original corporation. It is
the same corporation with a different name, and its character is in no respect changed. ... (6 Fletcher, Cyclopedia
of the Law of Private Corporations, 224-225, citing cases.)
The change in the name of a corporation has no more effect upon its identity as a corporation than a change of
name of a natural person has upon his identity. It does not affect the rights of the corporation, or lessen or add to
its obligations.
England. — Doe v. Norton, 11 M. & W. 913, 7 Jur. 751, 12 L. J. Exch. 418.
United States. — Metropolitan Nat. Bank v. Claggett, 141 U.S. 520, 12 S. Ct. 60, 35 U.S. (L. ed.) 841.
Alabama. — Lomb v. Pioneer Sav., etc., Co., 106 Ala. 591, 17 So. 670; North Birmingham Lumber Co. v. Sims,
157 Ala. 595, 48 So. 84.
Connecticut. — Trinity Church v. Hall, 22 Com. 125.
Illinois. — Mt. Palatine Academy v. Kleinschnitz 28 III, 133; St. Louis etc. R. Co. v. Miller, 43 Ill. 199;Reading
v. Wedder, 66 III. 80.
40
Indiana. — Rosenthal v. Madison etc., Plank Road Co., 10 Ind. 358.
Kentucky. — Cahill v. Bigger, 8 B. Mon. 211; Wilhite v. Convent of Good Shepherd, 177 Ky. 251, 78 S. W.
138.
Maryland. — Phinney v. Sheppard & Enoch Pratt Hospital, 88 Md. 633, 42 Atl. 58, writ of error dismissed, 177
U.S. 170, 20 S. Ct. 573, 44 U.S. (L. ed.) 720.
Missouri. — Dean v. La Motte Lead Co., 59 Mo. 523.
Nebraska. — Carlon v. City Sav. Bank, 82 Neb. 582, 188 N. W. 334. New York First Soc of M.E. Church v.
Brownell, 5 Hun 464.
Pennsylvania. — Com. v. Pittsburgh, 41 Pa. St. 278.
South Carolina. — South Carolina Mut Ins. Co. v. Price 67 S.C. 207, 45 S.E. 173.
Virginia. — Wilson v. Chesapeake etc., R. Co., 21 Gratt 654; Wright-Caesar Tobacco Co. v. Hoen,105 Va. 327,
54 S.E. 309.
Washington. — King v. Ilwaco R. etc., Co., 1 Wash. 127. 23 Pac. 924.
Wisconsin. — Racine Country Bank v. Ayers, 12 Wis. 512.
The fact that the corporation by its old name makes a format transfer of its property to the corporation by its new
name does not of itself show that the change in name has affected a change in the identity of the corporation.
Palfrey v. Association for Relief, etc., 110 La. 452, 34 So. 600. The fact that a corporation organized as a state
bank afterwards becomes a national bank by complying with the provisions of the National Banking Act, and
changes its name accordingly, has no effect on its right to sue upon obligations or liabilities incurred to it by its
former name. Michigan Ins. Bank v. Eldred 143 U.S. 293, 12 S. Ct. 450, 36 U.S. (L. ed.) 162.
A deed of land to a church by a particular name has been held not to be affected by the fact that the church
afterwards took a different name. Cahill v. Bigger, 8 B. Mon (ky) 211.
A change in the name of a corporation is not a divestiture of title or such a change as requires a regular transfer
of title to property, whether real or personal, from the corporation under one name to the same corporation under
another name. McCloskey v. Doherty, 97 Ky. 300, 30 S. W. 649. (19 American and English Annotated Cases
1242-1243.)
As was very aptly said in Pacific Bank v. De Ro 37 Cal. 538, "The changing of the name of a corporation is no
more the creation of a corporation than the changing of the name of a natural person is the begetting of a natural
person. The act, in both cases, would seem to be what the language which we use to designate it imports — a
change of name, and not a change of being.
Having arrived at the above conclusion, We have agree with appellant's pose that the lower court also erred in
holding that it is not the right party in interest to sue defendants-appellees. 4 As correctly pointed out by
appellant, the approval by the stockholders of the amendment of its articles of incorporation changing the name
"The Yek Tong Lin Fire & Marine Insurance Co., Ltd." to "Philippine First Insurance Co., Inc." on March 8,
1961, did not automatically change the name of said corporation on that date. To be effective, Section 18 of the
Corporation Law, earlier quoted, requires that "a copy of the articles of incorporation as amended, duly certified
to be correct by the president and the secretary of the corporation and a majority of the board of directors or
trustees, shall be filed with the Securities & Exchange Commissioner", and it is only from the time of such
filing, that "the corporation shall have the same powers and it and the members and stockholders thereof shall
thereafter be subject to the same liabilities as if such amendment had been embraced in the original articles of
incorporation." It goes without saying then that appellant rightly acted in its old name when on May 15, 1961, it
entered into the indemnity agreement, Annex A, with the defendant-appellees; for only after the filing of the
amended articles of incorporation with the Securities & Exchange Commission on May 26, 1961, did appellant
legally acquire its new name; and it was perfectly right for it to file the present case In that new name on
December 6, 1961. Such is, but the logical effect of the change of name of the corporation upon its actions.
Actions brought by a corporation after it has changed its name should be brought under the new name although
for the enforcement of rights existing at the time the change was made. Lomb v. Pioneer Sav., etc., Co., 106 Ala.
591, 17 So. 670: Newlan v. Lombard University, 62 III. 195; Thomas v. Visitor of Frederick County School, 7
Gill & J (Md.) 388; Delaware, etc., R. Co. v. Trick, 23 N. J. L. 321; Northumberland Country Bank v. Eyer, 60
Pa. St. 436; Wilson v. Chesapeake etc., R. Co., 21 Gratt (Va.) 654.
The change in the name of the corporation does not affect its right to bring an action on a note given to the
corporation under its former name. Cumberland College v. Ish, 22. Cal. 641; Northwestern College v.
Schwagler, 37 Ia. 577. (19 American and English Annotated Cases 1243.)
In consequence, We hold that the lower court erred in dismissing appellant's complaint. We take this
opportunity, however, to express the Court's feeling that it is apparent that appellee's position is more technical
than otherwise. Nowhere in the record is it seriously pretended that the indebtedness sued upon has already been
paid. If appellees entertained any fear that they might again be made liable to Yek Tong Lin Fire & Marine
Insurance Co. Ltd., or to someone else in its behalf, a cursory examination of the records of the Securities &
Exchange Commission would have sufficed to clear up the fact that Yek Tong Lin had just changed its name but
it had not ceased to be their creditor. Everyone should realize that when the time of the courts is utilized for
cases which do not involve substantial questions and the claim of one of the parties, therein is based on pure
technicality that can at most delay only the ultimate outcome necessarily adverse to such party because it has no
real cause on the merits, grave injustice is committed to numberless litigants whose meritorious cases cannot be
given all the needed time by the courts. We address this appeal once more to all members of the bar, in
particular, since it is their bounden duty to the profession and to our country and people at large to help ease as
fast as possible the clogged dockets of the courts. Let us not wait until the people resort to other means to secure
speedy, just and inexpensive determination of their cases.
WHEREFORE, judgment of the lower court is reversed, and this case is remanded to the trial court for further
proceedings consistent herewith With costs against appellees.
Universal Mills Corp. v. Universal Textile Mills, Inc.
78 SCRA 2
G.R. No L-28351 July 28, 1977
UNIVERSAL MILLS CORPORATION, petitioner,
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 vs. the other words composing the names of business corporations that sticks to the mind of those who deal with
UNIVERSAL TEXTILE MILLS, INC., respondent. them. The word "textile" in Universal Textile Mills, Inc.' can not possibly assure the exclusion of all other
Emigdio G. Tanjuatco for petitioner. entities with similar names from the mind of the public especially so, if the business they are engaged in are the
Picazo, Santayana, Reyes, Tayao & Alfonso for respondent. same, like in the instant case.

BARREDO, J.:
Appeal from the order of the Securities and Exchange Commission in S.E.C. Case No. 1079, entitled In the
Matter of the Universal Textile Mills, Inc. vs. Universal Mills Corporation, a petition to have appellant change
its corporate name on the ground that such name is "confusingly and deceptively similar" to that of appellee,
which petition the Commission granted.
This Commission further takes cognizance of the fact that when respondent filed the amendment changing its
name to Universal Mills Corporation, it correspondingly filed a written undertaking dated June 5, 1963 and
signed by its President, Mr. Mariano Cokiat, promising to change its name in the event that there is another
person, firm or entity who has obtained a prior right to the use of such name or one similar to it. That promise is
still binding upon the corporation and its responsible officers. (pp. 17-18, Record.)

According to the order, "the Universal Textile Mills, Inc. was organ on December 29, 1953, as a textile
manufacturing firm for which it was issued a certificate of registration on January 8, 1954. The Universal Mills
Corporation, on the other hand, was registered in this Commission on October 27, 1954, under its original name,
Universal Hosiery Mills Corporation, having as its primary purpose the "manufacture and production of
hosieries and wearing apparel of all kinds." On May 24, 1963, it filed an amendment to its articles of
incorporation changing its name to Universal Mills Corporation, its present name, for which this Commission
issued the certificate of approval on June 10, 1963.

The immediate cause of this present complaint, however, was the occurrence of a fire which gutted respondent's
spinning mills in Pasig, Rizal. Petitioner alleged that as a result of this fire and because of the similarity of
respondent's name to that of herein complainant, the news items appearing in the various metropolitan
newspapers carrying reports on the fire created uncertainty and confusion among its bankers, friends,
stockholders and customers prompting petitioner to make announcements, clarifying the real Identity of the
corporation whose property was burned. Petitioner presented documentary and testimonial evidence in support
of this allegation.

On the other hand, respondent's position is that the names of the two corporations are not similar and even if
there be some similarity, it is not confusing or deceptive; that the only reason that respondent changed its name
was because it expanded its business to include the manufacture of fabrics of all kinds; and that the word 'textile'
in petitioner's name is dominant and prominent enough to distinguish the two. It further argues that petitioner
failed to present evidence of confusion or deception in the ordinary course of business; that the only supposed
confusion proved by complainant arose out of an extraordinary occurrence — a disastrous fire. (pp. 16-&17,
Record.)

Upon these premises, the Commission held:

From the facts proved and the jurisprudence on the matter, it appears necessary under the circumstances to
enjoin the respondent Universal Mills Corporation from further using its present corporate name. Judging from
what has already happened, confusion is not only apparent, but possible. It does not matter that the instance of
confusion between the two corporate names was occasioned only by a fire or an extraordinary occurrence. It is
precisely the duty of this Commission to prevent such confusion at all times and under all circumstances not
only for the purpose of protecting the corporations involved but more so for the protection of the public.

In today's modern business life where people go by tradenames and corporate images, the corporate name
becomes the more important. This Commission cannot close its eyes to the fact that usually it is the sound of all
42